RBI hasn’t moved to inflation targeting yet: Raghuram Rajan
The Reserve Bank of India (RBI) has not yet started inflation targeting as it was suggested to do by the Urjit Patel committee, RBI Governor Raghuram Rajan said.
Mr. Rajan said the central bank was still discussing recommendations made by Deputy Governor Urjit Patel-led committee with the Union government. He stressed that inflation targeting appeared to be a sensitive issue.
Speaking on the topic, he said, "We haven't moved into inflation targeting as yet. That's something the Urjit Patel committee suggested, and it is not something the RBI has accepted."
Mr. Rajan's comments surfaced when he was delivering his keynote speech at the convocation of the Indira Gandhi Institute for Development Research on Friday.
But, Union Finance Minister P. Chidambaram suggested that the RBI, like the U. S. Federal Reserve, should have a twofold mandate - drag down inflation and boost economic growth. Announcing its long-term goal, the U. S. Federal reserve said it would be to keep inflation rate below 2 per cent and drag down unemployment rate, which is the proxy gauge for economic growth, to lower than 6 per cent.
The Urjit Patel committee's report, which was submitted in January this year, recommended a target zone wherein the retail inflation should be dragged down to 8 per cent within twelve months, to 6 per cent by the end of the second year, and then formally adopting long-run target of 4 per cent with a band of +/-2 per cent.
But, the North Block is feared that the central bank's focus on controlling retail inflation could result in interest rates staying high, which would hinder economic recovery.