India may have moved a step closer towards adopting the concept of inflation targeting with both the Finance Ministry and the Reserve Bank of India (RBI) coming to “great degree of convergence” on the way forward.
“I am happy that RBI Governor recently acknowledged that Government through Parliament will set an inflation target and leave the regulator to find ways and means to achieve the target”, Chidambaram said at a press conference as RBI Governor Raghuram Rajan sat by his side here on Friday.
Chidambaram noted that the sovereign has right to set the target and central bank has mandate to achieve the target.
His remarks are significant as a RBI appointed Urjit Committee had in January this year recommended moving to an inflation target of 4 per cent in 3 years, with 2 per cent band on either side while framing monetary policy.
The RBI is yet to adopt the Urjit Patel committee report on monetary policy. India has so far desisted from adopting inflation targeting as a concept.
Much would now depend on the new Government as to whether this recent “convergence” between finance ministry and RBI will be taken forward in true spirit.