Critical observers took the view that a single monetary policy was doomed to failure. This skepticism was supported by the arguments of the traditional theory of optimum currency areas, which recommended monetary unification only among economies with flexible markets, free mobility of labour, a centralised fiscal policy, and a limited incidence of asymmetric shocks.
The Reserve Bank’s “multiple indicator framework” adopted in 1998 and refined since then, in fact, subsumes a flexible inflation objective framework over the medium-term. Under this framework, while we strive for a balance among multiple objectives with the relative weights assigned to each objective varying as dictated by the prevailing macroeconomic context, we aim to achieve a medium-term inflation target.