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Governor Raghuram Rajan says RBI hasn't moved to inflation targeting yet

Saturday, 22 March 2014 - 7:45am IST | Place: Mumbai | Agency: dna

The Reserve Bank of India has not moved to inflation targeting yet, governor Raghuram Rajan said on Friday, adding some aspects of Deputy Governor Urjit Patel-led committee's recommendations need to be discussed with the government.

"What the RBI has said is that we are exploring the recommendations of the Urjit Patel report," Rajan said at the convocation ceremony at Indira Gandhi Institute of Development Research here on Friday.

"We have said that the Urjit Patel Committee's report says two things which we feel are useful. First is that we probably should focus more on CPI (Consumer Price Index) than WPI (Wholesale Price Index) because CPI is the inflation that actually what the common man sees and is base for many decisions and second that we need to bring CPI down, a reasonable path to bring it down over time."

The Patel committee in January recommended that the central bank should adopt the headline Consumer Price Index (Combined) as a nominal anchor for policy communication.

It also recommended that the central bank should aim to reduce headline CPI to 8% by January 2015, and 6% by January 2016.

"Do we have a target (for inflation)? The answer is no. We haven't moved into inflation targeting as yet...That's something the Urjit Patel committee suggests, it's not something the RBI has accepted," Rajan said.

Rajan shed further light on the ongoing focus over the trade-off between growth and inflation. "In the short run, there may be a cost to bringing down inflation in terms of growth. But in the long run, bringing down inflation is a good thing," Rajan said.

"...the long run trade off (between growth and inflation) doesn't exist. In the long run, people get wiser. People see high rates of inflation...you can't fool them, and you don't get any additional growth...you get growth from other things, but not from generating inflation," the governor reasoned.

With reference to developing countries, Rajan said that high inflation was detrimental, and that policymakers had to act, and "passivity" and "inactivity" were not options for them.--Cogencis

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