Flexible Inflation Targeting Helped India Maintain Price Stability Amid Global Challenges: RBI

(MENAFN- KNN India) New Delhi, Aug 22 (KNN) The Reserve Bank of India (RBI) has said that the flexible inflation targeting (FIT) framework has performed effectively since its adoption in 2016, helping to maintain price stability even during periods of global and domestic stress.

In a recent report, the central bank noted that between the framework's introduction and the end of 2019, inflation in India averaged around 4 percent and remained low and stable.

The framework underwent its first review in 2021 and was assessed as having broadly met its objectives.

The RBI acknowledged, however, that the conduct of monetary policy became more complex in the later years due to successive supply-side shocks to food and fuel prices.

These pressures intensified during the post-pandemic phase and the Russia-Ukraine conflict, pushing inflation outside the target range - a challenge shared by many economies.

Unlike in most countries, India's inflation management is complicated by the heavy weight of food and energy items, which account for more than half of the consumption basket.

The RBI underlined that this makes India's experience distinctive and potentially instructive for other nations exposed to similar vulnerabilities.

The report highlighted that price stability was achieved through close coordination between monetary and fiscal authorities.

While the RBI deployed monetary tightening to contain second-round price effects, the government implemented supply-side measures to ensure the availability of essential goods.

This policy synergy, the central bank said, was key to the framework's resilience.

The RBI added that the credibility and flexibility built into the FIT framework have helped India navigate extraordinary global shocks.

It concluded that the framework not only ensured stability in normal conditions but also stood firm during periods of severe disruption, offering lessons for other economies managing inflationary pressures from supply shocks.

(KNN Bureau)

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