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Inflation Target Of 4% : RBI

Inflation Target Of 4%:RBI:

The Government of India has decided to retain the inflation target of 4%, with a tolerance band of +/- 2 percentage points for the Monetary Policy Committee of the Reserve Bank of India (RBI) for the coming five years.

  • Earlier, the RBI in its Currency and Finance (RCF) report for the year 2020-21 also recommended the inflation target to be kept same as 4% +/-2% for next 5 years.
  • To control the price rise, the Centre in 2016 gave a mandate to the RBI to keep the retail inflation at 4% with a margin of 2% on either side for a five-year period ending 31st March 2021.
  • The Consumer Price Index (CPI) tracks the change in retail prices of goods and services which households purchase for their daily consumption.
  • The inflation target for the period 1st April 2021 to 31st March 2026 under the Reserve Bank of India Act 1934 has been kept at the same level as was for the previous 5 years.
  • The central bank and the government agreed in 2015 on a policy framework that stipulated a primary objective of ensuring price stability while keeping in mind the objective of growth.
  • The Flexible Inflation Target (FIT) was adopted in 2016. The Reserve Bank of India Act, 1934 was amended to provide a statutory basis for an FTI framework.
  • The amended Act provides for the inflation target to be set by the Government, in consultation with the RBI, once every five years.

Inflation Targeting:

  • It is a central banking policy that revolves around adjusting monetary policy to achieve a specified annual rate of inflation.
    Inflation targeting is known to bring more stability, predictability, and transparency in deciding monetary policy.