No support to inflation targeting in Political economy:Reddy

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Mumbai, Jun 27 (UNI) Reserve Bank of India Governor Y V Reddy has said democratic pressures in the country had proved to be a disciplining force so far in containing inflation.

The country's record over five decades is reasonably relative to most developing countries, He said in his remarks at the seventh BIS Annual Confererence at Luzern in Switzerland yesterday, a release said here.

He said ''India is not an inflation-targeting country'' though suggestions had emerged, mainly from the academia for inflation targeting. ''There is little or no scope for it in political economy'' he added.

Further, He said the two groups of commodities that carry a large weight in the consumption basket, namely food and fuel, are subject to supply shocks, making it difficult to identify a 'core' that could be meaningfully targeted.

Commenting on need for communciations by the Apex bank, he said '' we have no doubt that it enhances the effectiveness of monetary policy in a liberalised market environment''.

''Democratic accountability, as a reason for better communication, is very valid for India also. But, improvements in communication have been taking place in the recent years without any formal recognition of the extent of RBI's independence. My personal feeling is that improved communication in regard to the thinking and the actions of the RBI has enhanced the de facto central bank independence while, de jure, there has been no noticeable movement in according greater independence''.

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