Fixing inflation targets passe: RBI

MUMBAI: The Reserve Bank, which promised to keep inflation rate close to five per cent in 2007-08 while stopping short of calling it the official target, on Wednesday said aiming for specific price line numbers was a futile exercise.

"Experience shows that inflation targeting has not worked in countries which had set formal inflation targets," Reserve Bank Governor YV Reddy said here.

Citing the example of the UK, he said that country had an open capital account, a pure monetary authority and an exchange rate which was virtually free, yet it had not succeeded in inflation targeting.

Reddy said that this year, a five per cent inflation level would be 'the self-imposed mandate' whereas over the medium-term, the apex bank's aim was to bring down inflation to within the 4-4.5 per cent band.

"A few years ago, an eight per cent inflation level was considered comfortable but today a six per cent inflation causes discomfort," he said.

Calling for an understanding of 'global inflation dynamics', the RBI Governor said that now there was a need to strengthen supply-side management.

"There should be supply elasticities", he said, adding that this is where supply-side management assumed importance.