ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Inflation Targeting

Some developed countries have practised inflation targeting as a part of monetary policy during the 1990s. Price stability is needed to create a stable and non-inflationary environment for resource allocation. Stable price expectations are necessary for long-term contracts. Successful inflation targeting requires credibility of the enforcing agency, usually the government and the central bank. Credibility in turn requires that the target be chosen carefully. This article reviews inflation targeting experience so far and analyses the issues related to it. It argues for developing an inflation model for India. Inflation targeting in India should wait until financial sector reform agenda is accomplished.

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