India central bank chief sees case for lower inflation target in long run

MUMBAI: India is unlikely to raise its official inflation target and there may be a case for lowering it over the long term, Reserve Bank of India Governor Sanjay Malhotra said at an event in Russia on Wednesday.

The country’s inflation-targeting framework has helped lower average inflation, the central bank chief said in a conversation with his Russian counterpart, Elvira Nabiullina.

India adopted its inflation-targeting framework in 2016, which tasks the Reserve Bank of India with keeping headline consumer price inflation within a band set by the government.

In March, the government retained its retail inflation target of 4%, within its comfort band of 2%-6%, following a review. The target will remain in place for five years.

Malhotra said he does not expect the inflation target to be raised in the foreseeable future, but added that, given the lower inflation targets in advanced economies, there may be a case for India to lower its target over the long term.

Speaking at the Financial Congress of the Bank of Russia, Malhotra said while inflation in India is expected to rise, it currently remains below the central bank’s target. He added that he was confident the economy would continue growing at a fast pace for the foreseeable future.

India’s retail inflation stood at 3.93% in May and the economy grew 7.8% year-on-year in the quarter ended March. The government is yet to publish retail inflation data for June.