RBI’s external rate panel members suggest retaining headline inflation as target in India

Headline inflation is a crucial target for India’s monetary policy, according to external members of the RBI’s rate panel. The debate arises from a government suggestion to shift focus to core inflation, excluding volatile food prices. Despite falling core inflation, headline inflation above 4% has limited interest rate cuts. Shashanka Bhide emphasizes the need to consider the entire consumption basket for accurate price pressure assessment. While some members advocate for a shift to core inflation targeting, concerns remain about high food inflation spilling into core inflation. The current rate panel grapples with inflation above the 4% target due to food and fuel prices. The debate continues on whether targeting core inflation would allow room for interest rate cuts. Each member has varying views on the impact of targeting core inflation, with some supporting a shift and others cautioning against it. The MPC faces the challenge of balancing headline and core inflation to determine appropriate monetary policy measures.

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