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RBI ready to revisit strategies of ideal inflation target of 4-5%

03 Dec 2012 Evaluate

The Reserve Bank of India (RBI) is ready to revisit the ideal inflation target of 4-5%, which many feel is too low to attain in this current scenario said RBI Governor Duvvuri Subbarao. During a panel discussion on the occasion of the silver jubilee celebrations of the RBI-promoted Indira Gandhi Institute of Development Research, the governor said that we would certainly change the number but we will certainly look at our strategy.

Subbarao was commented by his predecessor governor of RBI, Y V Reddy during a panel discussion of the country economic prospects. He said that RBI have to relook at the 4-5% inflation level, which RBI had set before the crisis and is still holding on to as the ideal price level. According to Reddy, economic scenario has changed on multiple fronts like the integration of the domestic economy with the global economy and the rising government borrowing, which has resulted in inflation being consistently at high levels.  Comment comes when the GDP growth is in decadal low at 5.3% in the second quarter of these fiscal and urgent calls from the government and market for a monetary policy regime to pump the fragile economy.

D Subbarao said on the comment that you have been prophetic on many things; perhaps you will be prophetic on this also. Normal inflation post-crisis will be higher than pre-crisis. The RBI will announce the mid-quarter review of the monetary policy on December 18. The ideal inflation target of 4-5% has consistently found a mention in the quarterly monetary policy announcements. In the last policy RBI did not cut interest rates.  But Subbarao has hinted at a rate cut in the January policy.

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