CPI inflation and policy rates: Breaking the link

First, the clarification: there is no official link between RBI’s policy rate and headline CPI inflation. The central bank continues to anchor inflationary expectations to headline WPI inflation, with the medium-term target of around 5%. However, in the current market environment, most analysts believed that CPI inflation had increasingly assumed that role while its formal adoption was being debated by RBI’s committee on a new monetary policy framework.

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