It will soon be two years since Indian monetary policy shifted to flexible inflation targeting. The committee suggested that Indian monetary policy should thus target headline inflation rather than core inflation. This column had argued in October 2013 that India was already moving towards a monetary policy framework that focused on core inflation (https://goo.gl/6CziB4). It was the other way around earlier, when core inflation would either rise or fall to come closer to headline inflation. The stabilization of inflation expectations as well as the growing credibility of monetary policy means that monetary policy need not respond frantically to every unexpected shift in price levels.

Source: Mint March 28, 2018 02:15 UTC