India should retain headline inflation as target, external rate panel members say
target for monetary policy rather than switching to core inflation, external members of the central bank's rate panel told Reuters.
A suggestion was made in the government's official annual economic report last month to target inflation excluding volatile food prices, which are driven more by supply shortages. The idea has ignited a debate in India over the appropriate target for monetary policy.
India adopted the inflation targeting framework in 2016, setting a 4% headline inflation target for the central bank's rate setting panel.
The target has limited interest rate cuts as rising food prices have kept headline inflation above 4%, even though core inflation has fallen to record low levels of around 3%, prompting analysts to call on the Monetary Policy Committee (MPC) to focus on the latter.
Shashanka Bhide, an external member of the Reserve Bank of India's MPC, said it is necessary to look at the whole consumption basket to gauge the actual price pressures in the economy.
«If we use a partial basket for a target then it would not reflect the overall price pressures and if the target is the core alone, then it should in some way capture the trend of food inflation or fuel inflation if not the volatility,» Bhide said in an interview with Reuters.
The MPC — which comprises three Reserve Bank of India officials and three external members appointed by the government — has held the key repo rate steady at 6.5% for nine straight meetings now, citing persistently high food prices.
Growth in India's economy is seen
