India sets inflation target in monetary policy overhaul
In a document dated Feb. 20 but published on the ministry website on Monday, the government and the central bank agreed to set a consumer inflation target of 4 percent, with a band of plus or minus 2 percentage points, from the financial year ending in March 2017.
Rajan, an academic and former International Monetary Fund chief economist who took the reins at the RBI in 2013, has championed the move to inflation targeting, increasingly popular among emerging market economies which typically struggle to contain price rises that hurt their poorest citizens.
Monday's document showed the move - the most significant change in monetary policy since India opened its economy more than two decades ago - had the support of Prime Minister Narendra Modi's government. That will be critical, given India's inflation woes cannot be fixed by monetary policy alone.
"The monetary policy framework is clear: the objective is containing inflation," Finance Secretary Rajiv Mehrishi told reporters in New Delhi.
India has suffered from almost chronic price volatility, due in part to its dependence on energy imports and the uncertain impact of monsoon rains on its large farm sector, as well as the difficulties transporting food items to market because of its poor roads and infrastructure.
The government has also historically borrowed heavily to finance its spending, resulting in high fiscal deficits that also push up inflation...
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