Comment on “Indian Monetary Policy in the Time of Inflation Targeting and Demonetization”

• Date: 01 January 2019
• Author: Chalongphob Sussangkarn
• Published date: 01 January 2019
• DOI: http://doi.org/10.1111/aepr.12244

Comment on “Indian Monetary Policy

in the Time of Inflation Targeting and

Demonetization”

Chalongphob SUSSANGKARN†

Thailand Development Research Institute

JEL codes: E52, E58, O53

Accepted: 4 July 2018

The study of Mohan and Ray (2018) contains a wealth of valuable information on the

evolution of monetary policy in India, its objectives, challenges, instruments, and

implementations. The focus is on the period from the global financial crisis to the pre-

sent when Indian monetary policy evolved from a multiple indicators approach to a

formal Monetary Policy Framework targeting inflation (measured by the consumer

price index [CPI]) within a range (2–6%) and the repeal of the Reserve Bank of India

(RBI) Act to establish the legal framework for inflation targeting (IT). Challenges to

monetary policy from volatile capital flows and the demonetization episode are also

discussed.

As I was involved in developing the IT framework for Thailand back in 2000–2001

as a member of the first monetary policy committee under the leadership of Governor

M.R. Chatumongkol Sonakul, and also had oversight, as Minister of Finance, over the

reform of the Bank of Thailand (BOT) Act (2008) which gave the BOT more indepen-

dence and provided the legal framework for IT, I shall relate certain issues covered by

Mohan and Ray to the experiences in Thailand.

First is the inflation target. Although the 2–6% range adopted by India may seem

rather wide, in Thailand we also adopted a wide range of 0–3.5% to make sure that it

would not be difficult to meet the target over the first few years, particularly since the

economy had not yet fully recovered from the 1997 crisis. It was important to establish

credibility of the IT framework, which was very new for Thailand. The target was “core

inflation,”excluding fresh food and energy prices that tended to be volatile in the short

term as we were interested in medium- to long-term inflation expectations. The wide

band also meant that other economic objectives could be incorporated into the con-

duct of monetary policy when core inflation was well within the range. This provided

more flexibility to the IT framework and could help in the dialogue with politicians,

who tended to be more interested in growth and/or poverty reduction.

†Correspondence: Chalongphob Sussangkarn, Thailand Development Research Institute, 565 Soi

Ramkhamhaeng 39,Wangthonglang District, Bangkok 10310, Thailand. Email: chalongp@tdri.

or.th

© 2018 Japan Center for Economic Research 95

doi: 10.1111/aepr.12244 Asian Economic Policy Review (2019) 14, 95–96