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The journey of inflation targeting in India

Author

Listed:
  • Radhika Pandey

    (National Institute of Public Finance and Policy)

  • Ila Patnaik

    (Aditya Birla Group of Companies)

  • Rajeswari Sengupta

    (Indira Gandhi Institute of Development Research)

Abstract

It has been eight years since India adopted the inflation targeting (IT) framework for its monetary policy. In this paper we present a comprehensive analysis of the IT regime, addressing several critical aspects. We evaluate the performance of inflation over this period, and review the conduct of monetary policy during and after the Covid-19 pandemic. We also identify key challenges that persist particularly in context of the Impossible Trilemma and highlight issues that may require further examination in order to improve the effectiveness of the IT framework in the future.

Suggested Citation

  • Radhika Pandey & Ila Patnaik & Rajeswari Sengupta, 2024. "The journey of inflation targeting in India," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2024-022, Indira Gandhi Institute of Development Research, Mumbai, India.
    • Handle: RePEc:ind:igiwpp:2024-022
    as

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    File URL: http://www.igidr.ac.in/pdf/publication/WP-2024-022.pdf
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    References listed on IDEAS

    as
    1. Michael Hutchison & Rajeswari Sengupta & Nirvikar Singh, 2012. "India’s Trilemma: Financial Liberalisation, Exchange Rates and Monetary Policy," The World Economy, Wiley Blackwell, vol. 35(1), pages 3-18, January.
    2. Rajeswari Sengupta & Abhijit Sen Gupta, 2019. "Alternate instruments to manage the capital flow conundrum: A study of selected Asian economies," Pacific Economic Review, Wiley Blackwell, vol. 24(2), pages 241-268, May.
    3. Krishnan, K.P. & Somanathan, T.V. & Ahluwalia, Montek Singh & Kelkar, Vijay L. & Chawla, Ashok, 2022. "POLICY ROUNDTABLE 1 Future of India's Economic Reforms: 30 Years after "Bata Teri Raza Kya Hai (What's Your Wish?)," Looking Back to Look Ahead," India Policy Forum, National Council of Applied Economic Research, vol. 18(1), pages 173-180.
    4. Patnaik, Ila & Sengupta, Rajeshwari, 2022. "Analyzing India's Exchange Rate Regime," Revista Pistas Educativas, Instituto Tecnológico de Celaya, Departamento de Desarrollo Académico, Instituto Tecnológico de Celaya, Departamento de Desarrollo Académico, vol. 18(1), pages 53-85.
    5. Pami Dua, 2023. "Monetary Policy Framework in India," Springer Books, in: Pami Dua (ed.), Macroeconometric Methods, chapter 0, pages 39-72, Springer.
    6. Joshua Aizenman & Rajeswari Sengupta, 2013. "Financial Trilemma in China and a Comparative Analysis with India," Pacific Economic Review, Wiley Blackwell, vol. 18(2), pages 123-146, May.
    7. Nidhi Aggarwal & Sanchit Arora & Rajeswari Sengupta, 2022. "Capital account openness in India and a comparison with China: Then versus now," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2022-005, Indira Gandhi Institute of Development Research, Mumbai, India.
    8. Patnaik, Ila & Sengupta, Rajeshwari, 2022. "Analyzing India's Exchange Rate Regime," India Policy Forum, National Council of Applied Economic Research, vol. 18(1), pages 53-85.
    9. Barry Eichengreen & Poonam Gupta, 2024. "Inflation Targeting in India: A Further Assessment," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 18(1-2), pages 7-42, February.
    10. Taylor, Stephen J., 1987. "Forecasting the volatility of currency exchange rates," International Journal of Forecasting, Elsevier, vol. 3(1), pages 159-170.
    11. Buffie, Edward F. & Airaudo, M. & Zanna, Felipe, 2018. "Inflation targeting and exchange rate management in less developed countries," Journal of International Money and Finance, Elsevier, vol. 81(C), pages 159-184.
    12. Aeimit Lakdawala & Bhanu Pratap & Rajeswari Sengupta, 2023. "Impact of RBI’s monetary policy announcements on government bond yields: evidence from the pandemic," Indian Economic Review, Springer, vol. 58(2), pages 261-291, September.
    13. Garga, Vaishali & Lakdawala, Aeimit & Sengupta, Rajeswari, 2024. "Assessing Central Bank Commitment to Inflation Targeting in Emerging Economies: Evidence From India," Working Papers 107, Wake Forest University, Economics Department.
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    More about this item

    Keywords

    Inflation Targeting; Reserve Bank of India; Monetary Policy Committee; CPI Inflation; Impossible Trilemma;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F3 - International Economics - - International Finance

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