For the RBI, managing households' inflation expectations is critical, too

It is now well known that expectations significantly affect economic outcomes. Therefore, central banks focus a great deal on managing inflation expectations

The consumer price index-based inflation rate in June declined to 2.1 per cent, considerably below the Reserve Bank of India’s (RBI’s) legally mandated target of 4 per cent. Anticipating a decline in the inflation rate, the Monetary Policy Committee (MPC) in its June meeting decided to frontload the policy intervention and reduced the policy repo rate by 50 basis points to 5.5 per cent. Several economists are of the view that the inflation rate will remain soft in the coming months and are debating whether the MPC should further reduce the policy rate. From a policy perspective, while it is