RBI to focus on medium-term inflation, says Rajan

Udaipur: The Reserve Bank of India (RBI) would focus on medium-term inflation to let the economy adjust to the changes, its Governor Raghuram Rajan said.

He also observed that debt waiver schemes of central and state governments have not benefited farmers as they restricted credit flow subsequently

“We would like to focus on medium-term inflation, which gives time for the economy to adjust to the changes that are happening than chase short-term inflationary goals,” Rajan said at the 97th annual conference of the Indian Economic Association (IEA).
The three-day conference is organised jointly by IEA and the economics department of Mohan Lal Sukhadia University in this Rajasthan town, about 420km from Jaipur.

Asserting that no country in the world chased short-term inflation target ignoring domestic and global developments, Rajan said the central bank would target medium-term inflation, which was flexible.

“As we want to achieve this objective, we will give a time to reach it. If we go off track, we will recalibrate the objective within the medium-term so that I don’t have to achieve tomorrow but try to get back to it over the medium-term,” he said.

Noting that the central bank had a role in controlling inflation, Rajan said the RBI was not going to close shop and go home. In an interview to a national news channel on Friday, Rajan said the RBI could not “flip-flop” on interest rates with every rise or fall in inflation and would wait for a stable low price scenario.

The central bank has retained the repo rate — or the interest banks pay when they borrow money from the RBI to meet their short-term fund requirements — at eight per cent since January despite clamour for its reduction by industry and the government after the wholesale price index (WPI) based inflation fell to zero and retail inflation declined to a record low of 4.38 per cent in November.