How Will Inflation Targeting Boost India's Economy?
BANGALORE: A New Monetary Policy Framework was signed by many countries this year, including India. Both the Central Government and the Central Bank have signed the pledge. The pledge this year is focused on the practice of Inflation Targeting.
What is Inflation Targeting?
It is a monetary policy practice first adopted in 1990 by New Zealand. Since then, many governments have implemented it. Having a stable inflation marker helps anchor the public’s expectations, as expectations often lead to outcomes.
If the public expects inflation to rise, they will start spending accordingly, driving up the cost of goods. The Reserve Bank of India, under Central Banker, Raghuram Rajan, has recognized this fact and has decided to target 6 percent inflation by January 2016 and four percent inflation thereafter, with a cap of +/- two percent.
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