Monetary Policy in India: A Global Perspective

Pami Dua ()
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Pami Dua: University of Delhi

Chapter Chapter 4 in 75 Years of Growth, Development and Productivity in India, 2025, pp 115-158 from Springer

Abstract: Abstract In 2016, the monetary policy framework moved towards flexible inflation targeting and a six-member Monetary Policy Committee (MPC) was constituted for setting the policy rate. With this step towards modernization of the monetary policy process, India joined the set of countries that have adopted inflation targeting as their monetary policy framework. The Consumer Price Index (CPI combined) inflation target was set by the Government of India at 4% with ± 2% tolerance band for the period from August 5, 2016 to March 31, 2021. The target was renewed again for a period of 5 years in March 2021, i.e. April 1, 2021 to March 31, 2026. In this backdrop, the paper reviews the evolution of monetary policy frameworks in India since the inception of the Reserve Bank of India, especially from the mid-1980s. It also describes the monetary policy transmission process and its limitations in terms of lags and rigidities. It highlights the importance of unconventional monetary policy measures in supplementing conventional tools, especially during the pandemic. Further, it examines the voting pattern of the MPC in India and compares this with that of various developed and emerging economies. The synchronization of cuts in the policy rate by MPCs of various countries during the global slowdown in 2019 and the COVID-19 pandemic in the early 2020s is also analysed. The subsequent increases in the rates are also examined along with the synchronization in inflation across the globe.

Keywords: Inflation targeting; Monetary policy committee; Monetary transmission process; Unconventional monetary policy measures (search for similar items in EconPapers)
JEL-codes: E4 E5 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/978-981-97-8054-9_4

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