India should adopt differentiated inflation targeting

Many commentators have laid blame on tight inflation targeting for fall in our growth rates and persistent unemployment

The early seeds of inflation targeting as a monetary policy tool has been in vogue since the days of Paul Volcker (FED chairman) in the 1980s. Persistent double-digit inflation was the order of the day which was dysfunctional. High interest rates over 8-10 years did tame the inflation in US.

Although RBI adopted the Urjit Patel committee recommendations on inflation targeting in early 2014, RBI’s tightening had started at least 3 years before that to tame the inflation arising out of expansionary interventions undertaken to tackle 2007-08 crisis.

The Critique

Many commentators have laid blame on tight inflation targeting for fall in our