India's decision to formally implement its central inflation target of 4 percent can help moderate future price rises and support macroeconomic stability, Moody's Investors Service said on Sunday.
The government this week notified parliament that it would introduce the target of 4 percent, plus or minus 2 percent, a key confirmation of the inflation-fighting policies championed by outgoing Reserve Bank of India (RBI) Governor Raghuram Rajan. Moody's said an explicit target could help anchor price expectations and keep actual inflation at moderate levels. The government's implementation was "credit positive" and underlined its commitment to controlling price rises, the ratings agency said.
"Sustained moderate inflation would contribute to macroeconomic stability and help prevent a repetition of the short marked cycles of the past," Marie Diron, Senior Vice President, Sovereign Risk Group, said in a statement. The 4 percent inflation target for Asia's third-largest economy, which has a history of volatile prices, is in line with the goal the government originally agreed with Rajan.
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