The Daily Brief How does one score the RBI?
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Aug 29, 2025 Explore the Reserve Bank of India's quest for a new report card to evaluate its monetary policy effectiveness. The discussion dives into the challenges of measuring performance amidst evolving inflation targets. Discover how contrasting educational strategies between India and China since the mid-20th century have shaped their economic landscapes. The podcast highlights the consequences of India's elite-centric education on job opportunities and emphasizes the need for greater investment in human capital to boost national prosperity.
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Why RBI Uses An Inflation Target
- The RBI's performance is judged by a monetary policy framework that targets CPI inflation at 4% ±2%.
- This target acts as a simple proxy because monetary policy most directly influences prices.
Headline Vs Core: What To Measure
- The RBI questions whether to target headline CPI or core inflation that excludes food and fuel.
- Headline is noisier from weather and geopolitics, while core better isolates monetary policy effects.
Why India’s 4% Target Fits Its Economy
- Advanced economies target ~2% inflation while emerging markets tolerate higher rates around 3–6%.
- India's natural inflation appears closer to 4% due to structural factors like the Balassa-Samuelson effect.