Addressing the convocation ceremony of the Indira Gandhi Institute of Development Research, Rajan said inflation targeting is something that RBI Deputy Governor Urjit Patel has suggested and the bank has not accepted it yet.
A special panel headed by RBI Deputy Governor Urjit Patel had proposed a framework for monetary policy with several recommendations.

The panel had suggested a shift in focus to retail or Consumer Price Index (CPI) from the Wholesale Price Index (WPI). It also set the path for targeting inflation, with an aim to bring down CPI-based inflation to four percent in the next two years and it should be at eight percent by March 2015.

Rajan reiterated that the RBI would closely look at retail inflation number, which is currently at 8.1 percent, and its objective would be to bring it down.

Calling for sustained low inflation, Rajan said that across the world, people have discovered that allowing inflation to rise eventually has costs and does not have benefits. He also debunked the growth-inflation trade-off, saying the long run trade-off between growth and inflation does not exist.

Rajan warned that higher and higher level of inflation feed on each other and the ultimate is hyper inflation. He said hyper inflation has social conflict because the middle-class savings get wiped out and it is not where the RBI plans to go.

JPN

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