Opinion | Central bank credibility is key to achieving a Goldilocks economy

In this article for Mint, Dr Niranjan Rajadhyaksha, Executive Director, Artha Global, writes about the importance of the central bank’s credibility in controlling inflation and stimulating economic growth.

Excerpts below:

“Das did well to reiterate in his statement that the goal is to bring inflation close to 4%. The two percentage point band on either side of this number has been put in place to ensure that the Indian central bank does not overreact to the inflationary consequences of temporary supply shocks, and looks past them when conducting monetary policy. That gives it some operational freedom in the short run. However, the mandate over the medium term is clear: keep inflation near 4%. Sticking to this mandate is a matter of monetary policy credibility.

The question is what the pursuit of this last stretch of disinflation may mean for India’s real economy. Keeping interest rates at the current level for longer than earlier expected will have consequences for economic activity at a time when our economy is growing at a steady rate, neither too fast nor too slow.”

Read the full article here.

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