Does ‘inflation targeting’ work in India?

India's inflation targeting policy has been called into question due to recent findings that the country's Phillips curve is flat. This means that the traditional relationship between inflation and unemployment may not apply in India. As a result, the Reserve Bank of India's (RBI) efforts to control inflation through monetary policy may inadvertently lower output and employment without achieving the desired reduction in inflation. This raises concerns about the effectiveness of inflation targeting in India's economy.

Why it matters

India's Phillips curve is flat, and households' inflation expectations are higher than the RBI's projections. This indicates that inflation targeting may not be effective in India.

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