The popular notion of the central bank and monetary policy as being the primary instrument of inflation targeting hasn’t proven to be relevant in the changing domestic and global environment. Although Rajan gets credited for bringing inflation down, the fact is that monetary policy had very little to do with the decline in inflation since 2014. While retail inflation has come down as a result of the factors mentioned above, the real problem with inflation in India has been persistently high food inflation. The message is clear: neither was the high inflation a result of poor monetary policy nor is the decline in inflation a result of monetary policy. But, even in the developed world, where the financial markets are well developed, central banks have struggled to use inflation targeting.

Source: Mint September 06, 2016 19:18 UTC