2 that are getting imposed on the functioning of the IT framework owing to policy choices made by the RBI as well as some legacy, structural issues and in the second part, we describe in detail various aspects of the conduct of monetary policy during the IT regime. [...] The EURO-USD is one of the most stable exchange rates in the world, not because the US Federal Reserve or the European Central Bank regularly intervene in the FX markets to mitigate currency volatility, but because the exchange rate is free to float and huge amounts of capital inflows and outflows across the borders of the relevant countries keep the rate stable. [...] During the IT regime, the Indian economy encountered several significant shocks, including Demonetisation in 2016, the Covid-19 pandemic in 2020 and 2021, and more recently, the intensified geopolitical tensions following the Russian invasion of Ukraine in 2022 and the conflicts in the Middle East. [...] The Finance Act of 2016 amended the RBI Act (1934) to add price stability as the primary objective of monetary policy, CPI as the nominal anchor, and a Monetary Policy Committee (MPC) to set the policy 4The Commission recommended that the Ministry of Finance should specify a quantifiable objective for the RBI that can be monitored. [...] In such circumstances, the RBI is required to inform the government about the reasons for the failure and propose remedial measures and the expected time it will take to return inflation to the target.
- Pages
- 62
- Published in
- India
Table of Contents
- Insert from: "IT_Overview_tex.pdf" 3
- Introduction 5
- Background 9
- Need for a defined nominal anchor 11
- Inflation targeting regime in India 12
- Monetary policy challenges in emerging economies 14
- Navigating the Impossible Trilemma 14
- Conflict between monetary and debt management 24
- Monetary policy process 24
- Meetings and voting patterns under the first MPC 25
- Meetings and voting patterns under the second MPC 30
- Conduct of monetary policy during Covid 36
- Inflation performance 39
- Inflation performance under the two MPCs 41
- Trends and patterns in households’ inflation expectations 45
- Monetary policy transmission 46
- Transmission through the banking sector 46
- Transmission through the bond market 50
- Anchoring of inflation expectations 54
- Conclusion 55
- Appendix 59
- Inflation forecast 60
- Voting patterns on stance 62
