The Impact of Inflation Targeting on Monetary Policy in Emerging Economies: A Case Study of India

Abstract

Inflation targeting's (IT) influence on the monetary policy structure of developing nations, particularly India, and its efficacy. how the Reserve Bank of India's (RBI) decision to implement inflation targeting has affected the country's economic growth, stability, and management of prices. Examining the connection between inflation expectations, actual inflation rates, and monetary policy responses, the research draws on both theoretical models and empirical data. Examines whether inflation targeting has increased economic stability, improved the accuracy of inflation forecasts, and bolstered the credibility of the Reserve Bank of India (RBI) through the use of time-series analysis and a study of important policy changes since the advent of information technology (IT) in India. Looking at how other developing nations have dealt with inflation targeting sheds light on the specific difficulties and results that have arisen in India's specific setting. The results imply that the RBI's capacity to manage inflation expectations, the external shocks that affect the economy, and the overall economic climate determine how effective inflation targeting is. Nevertheless, inflation targeting has enhanced policy transparency and control. policy ideas for modifying India's inflation targeting strategy to better correspond with developing economic conditions.