Hits 'n' misses: Analysing Raghuram Rajan's first year in office

.....Governor Rajan has lived up to his reputation as a first rate macroeconomist by not only calmly dealing with the sliding INR a year ago but also focusing the RBI firmly on fighting inflation (that too measured by CPI, not WPI). By moving the RBI to an informal inflation-targeting regime and by hiking the repo rate by 75 basis points in 12 months, the Governor has re-positioned RBI as a guardian of the value of the rupee, says Ambit. However, he has not done enough, which is apparent from the fact that inflation expectations are where they were when he took charge a year ago. As the Fed pulls the US out of quantitative easing (QE), the RBI’s resolve to protect the value of the rupee looks likely to be tested in the coming months.The report says that the most important change that Rajan administered as the RBI’s governor was to effect a swift transition from being a central bank that ‘loosely targeted both GDP growth and WPI inflation’ to one that is now ‘explicitly focussed on targeting CPI inflation’. The Urjit Patel committee (which was constituted by Rajan) report noted the outright superiority of inflation measured through the CPI vs the WPI in its report. Following the publication of this report, the RBI formally adopted a CPI target......

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