India's inflation targeting success better than advanced nations: SBI

15 Sep '24

1 min read

India's inflation targeting success better than advanced nations: SBI

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Compared to advanced nations like the US, Germany and France, India's success in targeting inflation has been better, a research report by the State Bank of India said.
The synchronisation of monetary and fiscal policies, particularly during the pandemic, played a key role in maintaining price stability, it noted.
Food inflation, however, remains high.

Compared to advanced economies like the United States, Germany and France, India’s success in targeting inflation has been better, according to a research report by the State Bank of India (SBI).

India recorded one of the lowest deviations from its inflation targets between 2021 and 2024, highlighting the effectiveness of its inflation control measures, it noted.

"The success of inflation targeting in India is largely a byproduct of a vibrant financial ecosystem where RBI [Reserve Bank of India], [the] government and the banks are working closely in unison in ushering in market reforms" said the report.

The synchronisation of monetary and fiscal policies, particularly during the pandemic, played a key role in maintaining price stability, the report noted.

Challenges earlier that hindered the effective transmission of monetary policy included sustained fiscal dominance, the presence of a large informal sector, significant informal financing and inefficiencies in how banks priced their loan products.

RBI's inflation targeting has anchored inflationary expectations, even as food inflation remains high, the report argued. The notion that headline inflation should exclude food prices was dismissed as counterfactual by the report.

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