Positive real rates, rupee and reserves adequacy4 min read 24 Apr 2017, 03:05 AM IST
Inflation expectations saw a sharp decline only when the Reserve Bank of India (RBI) managed to turn real rates positive in India
After the Reserve Bank of India (RBI) adopted an inflation-targeting framework, real rates have turned positive in India, thanks to the central bank’s cautious monetary policy stance and single-minded focus on bringing headline consumer price index (CPI) inflation below 5%. Between FY15 and FY17, CPI inflation has averaged 5.1%, with the momentum continuing to ease over the course of the last three years. In FY17, CPI inflation averaged 4.5%, which was the lowest outturn in a decade. Real interest rates in terms of CPI were 2% on an average in the last three years, which helped to bring inflation expectations down to 9.6% in FY17 (fiscal average), from 13-15% levels in the pre-inflation-targeting period.
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