A looser inflation target would not help

The government is due to issue the RBI with a new inflation target next year, and there are suggestions that it is considering relaxing the existing framework perhaps by widening the “tolerance band”. But there isn’t any evidence that the current set-up is forcing the RBI to keep policy tight. Instead, its credibility has delivered lower and more stable inflation without requiring interest rates to be high. Changing the framework after only five years would be a mistake.