Motilal Oswal: Should India Relax Its Inflation Target?
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Motilal Oswal Report
Two major developments occurred in the realm of Global Central Banking over the past few weeks -
relaxation of the inflation mandate by the U.S. Federal Reserve and the recent proposal in Indonesia, which recommends the inclusion of the Finance Minister and another minister in the economics sector in monetary policy matters.
With the imminent reshuffling in India’s monetary policy committee (MPC), domestic demands have emerged to relax the inflation target of 4% (with up/down 2 percentage point) and also for the MPC to be more supportive of economic growth.
In this note, we reiterate our argument that Indian authorities must not take cues from the U.S.’ policies because of the massive differences between the two economies.
In light of the Covid-19 pandemic, it is rightly suggested to ease the monetary policy to support economic growth.
However, there are no free lunches in the world and same policies could yield highly varied results in different nations depending on the domestic economic environment
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