India Implements CPI Target, Cementing Rajan’s Legacy – Reuters

India Sets Formal Inflation Target of 4%

NEW DELHI – On Friday, India officially established its central inflation target at 4%, marking a significant move aligned with the inflation-controlling policies advocated by Reserve Bank of India (RBI) Governor Raghuram Rajan, who is set to step down next month.

During a session in the parliament’s upper house, Junior Finance Minister Arjun Ram Meghwal presented a notification confirming the inflation target of 4%, with a tolerance range of plus or minus 2%. This target is consistent with the initial agreement reached between the government and Rajan.

A senior government official indicated that candidates are currently being shortlisted for the six-member monetary policy committee (MPC). However, the committee is unlikely to be established in time for the RBI policy meeting scheduled for next Tuesday.

"We are in the process of shortlisting candidates for the MPC, but it will not be ready before the August 9 policy meeting," the official stated, speaking on the condition of anonymity. They noted that the committee might be formed before Rajan’s departure.

Rajan, a former chief economist at the International Monetary Fund and a respected figure in financial circles, will conclude his three-year term at the RBI on September 4. His tenure has been marked by significant reductions in inflation rates.

In June, Rajan made headlines by announcing that he would not seek a second term. He has since focused on solidifying his legacy by implementing formal inflation targeting and preparing the MPC for his successor.

Despite this, some senior economists, including Rajan’s predecessor Duvvuri Subbarao, have cautioned against an overemphasis on fixed inflation targets, emphasizing the importance of promoting growth and financial stability.

Speculation continues regarding who will succeed Rajan. While the pool of candidates has narrowed, officials in Prime Minister Narendra Modi’s office have yet to confirm if an announcement about the new appointment is forthcoming.