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Patra Says Inflation Targeting Supports Price Stability and Growth
Michael Debabrata Patra says India’s inflation-targeting system has helped keep price rises near its goal.
He points to two five-year periods in which average inflation was 4.5% and 4.9%.
These years included major disruptions, such as the pandemic and the war in Ukraine.
Patra says interest-rate policy can help bring inflation down, even when the original problem comes from food or fuel supplies.
But targeted steps can also be used to deal with problems in particular sectors.
He says the committee that sets policy debates different views, even if it presents a united public decision.
Patra believes keeping prices stable helps the economy grow steadily.
He also says India’s inflation target should be reviewed as the economy changes.
Michael Debabrata Patra says inflation averaged 4.5% in FIT’s first five years and 4.9% in the next five.
He credits flexible inflation targeting with keeping inflation aligned with its target through major shocks.
Patra says monetary policy can contain supply-driven inflation while targeted measures address sector-specific imbalances.
He says MPC decisions involve substantial internal debate, even when public communications appear measured.
Patra argues price stability supports growth, citing average real growth of 7.8% from 2021-22 to 2025-26.
- Who
- Michael Debabrata Patra, a long-serving member of India’s Monetary Policy Committee.
- What
- Patra discussed flexible inflation targeting, its record, and lessons for monetary policy.
- Where
- India.
- When
- In an e-mail interview reflecting on a decade of flexible inflation targeting.
- Why
- To assess how inflation targeting has affected price stability and growth, and what policy lessons should guide the future.
Policy flexibility and caution
Price stability and firm action
Balancing inflation and growth
Policy flexibility and caution
Patra says FIT allows flexibility to give growth greater weight when circumstances warrant it, as during the pandemic.
Price stability and firm action
He also argues that inflation must be brought back to target because sustained price stability lays the foundation for growth.
Responding to supply shocks
Policy flexibility and caution
Sector-specific supply problems, such as food or fuel shocks, can be addressed with targeted supply-management measures.
Price stability and firm action
Patra says monetary policy can still bring inflation to target regardless of the shock’s source, and should be activated if imbalances become persistent and widespread.
Setting the inflation target
Policy flexibility and caution
Patra says the target should reflect the economy’s changing trend inflation rate and structural conditions.
Price stability and firm action
He says that if India becomes an advanced economy, its inflation target should align with the advanced-economy average, which he identifies as 2%.
Key facts
- Interviewee
- Michael Debabrata Patra
- Framework discussed
- Flexible inflation targeting (FIT)
- Inflation average, first five years
- 4.5%
- Inflation average, next five years
- 4.9%
- Inflation target referenced
- 4%
- Upper tolerance band breach
- Inflation exceeded the 6% upper band for three consecutive quarters in 2022.
- Real growth cited
- An average of 7.8% from 2021-22 to 2025-26, according to Patra.
Quotes
Michael Debabrata Patra
Long-serving member of India's Monetary Policy Committee and former deputy governor of the Reserve Bank of India.
“First of all, it is important to recognise that, irrespective of the type of shock, monetary policy can bring inflation to the target.”
rediff.com
“By being anti-inflationary, monetary policy makes the biggest contribution to growth.”
rediff.com
Sources
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