New Delhi, March 5 (KNN) Under the new ‘inflation targeting’ mechanism, the Government has mandated RBI to bring down inflation to below 6 per cent by January 2016 and then target a level of 4 per cent by March next year. RBI will have to explain the reasons if such targets are not achieved.
 
Commenting on it the Global Credit Rating firm Moody’s today said the new ‘inflation targeting’ mechanism is a “credit positive” move and it would make RBI’s monetary policy tools much more effective.
 
Moody’s said the new mechanism would increase the predictability and effectiveness of RBI’s monetary policy, while the effectiveness of its monetary tools would increase because ‘inflation targeting’ would take into account future — rather than past — price trends.
 
Also an increase in monetary policy transparency and effectiveness would lessen volatility in international capital flows into India and support institutional strengthening via accountability, it added.
 
Unchecked inflation would have a greater chance of hurting growth, Moody’s cautioned, adding between 2011 and 2014 inflation was largely driven by food and commodity prices but it ultimately compromised growth.
 
As the RBI implements its mandate to curb inflation regardless of its source, the government should try to lower food inflation, the mother of consumer price index. This will need reducing inefficiencies in food production, distribution and administered pricing. (KNN/DB)