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Inflation targeting in India and sudden capital flows

Summary:
Prof Gurbachan Singh of ISI in this I4I piece proposes two fiscal policy measures which will help RBI target inflation and take care of sudden capital flows: Current law in India mandates a review of the target inflation rate by 31 March 2021 for a five-year period. Several critics have called for abandoning the flexible inflation targeting regime altogether. In this post, Gurbachan Singh shows that flexible inflation targeting can accentuate the problem of sudden capital flows, and that the current monetary policy framework can be substantially improved by including two ‘new’ policy instruments that can be used by the Ministry of Finance rather than the RBI. This entry was posted on January 8, 2021 at 7:21 pm and is filed under

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Prof Gurbachan Singh of ISI in this I4I piece proposes two fiscal policy measures which will help RBI target inflation and take care of sudden capital flows:

Current law in India mandates a review of the target inflation rate by 31 March 2021 for a five-year period. Several critics have called for abandoning the flexible inflation targeting regime altogether. In this post, Gurbachan Singh shows that flexible inflation targeting can accentuate the problem of sudden capital flows, and that the current monetary policy framework can be substantially improved by including two ‘new’ policy instruments that can be used by the Ministry of Finance rather than the RBI.

Amol Agrawal
I am currently pursuing my PhD in economics. I have work-ex of nearly 10 years with most of those years spent figuring economic research in Mumbai’s financial sector.

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