View: India’s inflation targeting framework ain’t broke. But it can definitely do with some improvement

Synopsis

The consumer price index (CPI) inflation mid-point target should be maintained at 4% within a +/-2% band, but a blended core inflation — average of CPI and wholesale price index (WPI) — target of 4% +/-1% should be added as an additional anchor to decide on the monetary policy stance. If both headline CPI inflation and core inflation remain above 5% on a secular basis, then the central bank will need to tighten monetary stance, to bring inflation back to the target.