Fixing inflation targets passe: Reddy

The Reserve Bank, which promised to keep inflation rate close to 5% in 2007-08 while stopping short of calling it the official target, today said aiming for specific price line numbers was a futile exercise.

"Experience shows that inflation targeting has not worked in countries which had set formal inflation targets," Reserve Bank Governor Y V Reddy said here.

Citing the example of the UK, he said that country had an open capital account, a pure monetary authority and an exchange rate which was virtually free, yet it had not succeeded in inflation targeting.

Reddy said that this year, a 5% inflation level would be "the self-imposed mandate" whereas over the medium-term, the apex bank's aim is to bring down inflation to within the 4-4.5% band.

"A few years ago, an 8% inflation level was considered comfortable, but today a 6% inflation causes discomfort," he said.

Calling for an understanding of "global inflation dynamics", the RBI Governor said that there is a need now to strengthen supply-side management.

"There should be supply elasticities," he said, adding that this is where supply-side management assumed importance.