Reevaluating India's Monetary Policy Framework: Insights from Inflation Expectations and Targeting

Abstract

stability of the Indian economy and its monetary policy system, particularly with regard to inflation expectations and targets. Since the Reserve Bank of India (RBI) implemented an inflation-targeting framework in 2016, there have been significant changes in the way inflation is managed in India. Stabilising prices and anchoring inflation expectations are the goals. The paper takes a quantitative method to analyse the effects of inflation targeting on economic growth, inflation volatility, and the anchoring of inflation expectations. Utilising time-series data and econometric models, this study investigates the ramifications for macroeconomic stability, the impact of the Reserve Bank of India's (RBI) policies on reducing inflation, and the nature of the relationship between inflation expectations and actual inflation. Although inflation targeting has been successful in reducing inflation volatility and increasing transparency, the article concludes that long-term price stability remains elusive due to external variables like changes in currency rates and global commodity prices. recommendations for enhancing the inflation-targeting system of the Reserve Bank of India (RBI), elevating inflation expectations to a more central role in monetary policy, and addressing the fundamental issues plaguing the economy to better control inflation in the future.