Reserve Bank of India (RBI) governor D Subbarao has said the central bank is ready to revisit the ideal inflation target of 4-5%, which many feel is too low to attain given the current scenario.
“I am not saying that we would definitely change the number, but we will certainly revisit our strategy,” Subbarao said during a panel discussion on the occasion of the silver jubilee celebrations of the RBI-promoted Indira Gandhi Institute of Development Research here over the weekend.
At a panel discussion on the ‘Country’s economic prospects’, Subbarao was prodded by his predecessor YV Reddy to have a relook at the 4-5% inflation level.
The RBI had set the level before the crisis and is still holding on to it as the ideal price level.
According to Reddy, a lot has changed on multiple fronts like the integration of the domestic economy with the global economy and rising government borrowing, which has resulted in inflation being consistently at high levels.
The comment comes in the wake of a decade's low growth in the gross domestic product of 5.3% in the second quarter of this fiscal and shrill calls from the government and industry for a benign monetary policy regime to prop the fragile economy.
The RBI will announce the mid-quarter review of the monetary policy on December 18. At the last policy, though he did not cut interest rates, Subbarao had hinted at a rate cut in the January policy.
Despite 13 successive rate hikes between March 2010 and October 2011, inflation has been treading close to double-digits, with the sole exception of a few months in 2009 when it had fallen into the negative territory.
“You (Reddy) have been prophetic on many things, perhaps you will be prophetic on this also. Normal inflation post-crisis will be higher than pre-crisis," Subbarao said.
The ideal inflation target of 4-5% has consistently found a mention in the quarterly monetary policy announcements, even as the headline inflation breached the double-digit mark.
However, Subbarao's announcement of revisiting the ideal levels did not find support from Prime Minister's Economic Advisory Council chairman (and former RBI governor) C Rangarajan, who said the