Under governor Urjit Patel, the Reserve Bank of India (RBI) will target inflation of 4%, three officials familiar with its thinking said, adopting a narrower reading of its mandate than markets in a bid to stamp out rampant price rises of the past. The amendments were part of landmark changes to India’s monetary policy pushed by Patel, then deputy governor, and his predecessor as governor, Raghuram Rajan, and require the RBI “to contain inflation within the specified target level” of 4%, but within a tolerated band of 2-6%. But the RBI is determined to chase the 4 % figure, the officials said, as Patel and the other five members of his monetary policy committee (MPC) seek to defend the RBI’s credibility on inflation. RBI versus marketsThe pursuit of the 4 % target will likely continue to remain a source of disagreement between the RBI and some market players, even as investors begin to adjust to a more hawkish monetary policy. “If people start doubting RBI’s credibility in controlling inflation, then producers will start raising prices, which in turn will push up inflation expectations.

Source: Hindustan Times May 08, 2017 03:45 UTC