RBI to use Inflation Gauge for Monetary Policy

Reserve Bank of India Governor Raghuram Rajan is set to use consumer-price inflation as the main guide for monetary policy for the first time, a shift that signals further increases in the benchmark interest rate.

Rajan, 50, will add to last week’s surprise repurchase-rate boost after specifying a pace of consumer-price gains as the key target, seven of 10 analysts said in a Bloomberg News survey. A panel he set up after becoming governor on Sept. 4 is due to report by December on revising the monetary-policy framework.

Rajan, a former International Monetary Fund chief economist, is reviewing the array of goals now guiding policy after growth slowed to a decade low and as consumer inflation exceeds 9 percent. Focusing on consumer prices would simplify those objectives and curb a practice of relying on wholesale inflation, bringing the RBI’s approach closer to counterparts from Indonesia to Europe.


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