How ideology muddled inflation control in India
The HinduThe Governor of the Reserve Bank of India reportedly stated that the inflation rate would be brought to its target level of 4% within 24 months. Though the characteristics of India’s economy vary substantially when compared to those of the industrialised West, their governments follow the same approach to inflation control, termed ‘inflation targeting’ and implemented by their central banks. Faced with high inflation, Europe’s policymakers exhort that central banks should raise the interest rate further, even if it means triggering a recession. In the face of the evident failure of monetary policy in controlling inflation globally today, central bankers concerned with retaining their relevance make a renewed case for it by arguing that by pursuing a high-interest-rate policy, central banks can ‘anchor’ the expectation of inflation, and thereby inflation itself. This makes it difficult to claim that inflation targeting, which is supposed to work via the central bank’s ‘anchoring’ of expectations, works in India.