The Role of Inflation Targeting in Anchoring Long-Run Inflation Expectations: Evidence from India

This paper explores the effects of India's adoption of inflation targeting (IT) as a monetary policy framework in 2016 on long-term inflation expectations in the private sector. Using data from 2010 to 2022, including inflation forecasts from professional forecasters and an inflation sentiment index derived from newspaper articles, our analysis assesses the impact of inflation sentiment on both long-run and short-run inflation expectations. Our findings suggest that post-2016, long-term inflation expectations became less sensitive to inflation sentiment, indicating that India's transition to IT may have contributed to anchoring these expectations in line with the central bank's target.