RBI chief rules out a revision in inflation goal
The RBI Governor D. Subbarao has ruled out any revision in its inflation goal while addressing a meeting over the subject “Is there a new normal for inflation?”
Mr. Subbarao asserted that:
- Much of Indian Economy’s inflation is driven by supply constraints and these could be corrected by appropriate policies and their effective implementation.
- Accepting a new normal for inflation not only doesn’t has a theoretical or empirical support, but it means the moral hazard of policy inaction in dealing with supply constraints.
- There is no empirical evidence to establish that the benefits of higher growth outweigh the cost of welfare loss associated with higher inflation.
Neither theory nor empirical evidence presents a credible case for acquiescing in a new normal for inflation in India