The objective of aligning India’s inflation with the 4% target on a sustainable basis is not assured, according to an article in the RBI’s latest (December 2023) bulletin. We need to accept the fact that long-term targets are at odds with short-term risks. The article said that while stakeholders are focusing on distant inflation forecasts moving towards the 4% target, they are overlooking significant near-term risks emanating from potential spikes in inflation due to food price volatility. Under such circumstances, the clamor that arises for rate cuts or for the RBI to commit to a path of moderation in the level of policy rate can be unjustified. We must have faith that the RBI is acting in the nation’s best interests even if there is nothing much to show in the short-run.
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