Going beyond the inflation target

RBI has to manage multiple risks. Economists argue the system has got so used to lower rates and higher liquidity that a sudden tightening could lead to financial market dislocations

It was expected for a while but the September inflation numbers made it official. The Reserve Bank of India (RBI) has not been able to contain inflation as mandated by the law. According to the law, the central bank is expected to keep the consumer price index-based inflation rate at 4 per cent with a tolerance limit of 2 percentage points on both sides. If the rate remains outside the tolerance band for three consecutive quarters, it would be seen as a failure to achieve the target. The central bank, consequently, is required to write to the Union government, stating