On April 1,2021, Government of India has decided to continue the existing inflation-targeting framework which fixed the inflation target (price stability) of 4% with a +/- 2% tolerance band (in the range of 2% – 6%) for the next 5 fiscal years i.e. FY22 to FY26.
- The inflation target for the period April 1, 2021 to March 31, 2026 under the Reserve Bank of India Act 1934 has been kept at the same level as was for previous 5 years.
- After framing the inflation target in 2016 the Retail inflation has fallen from 26% in the pre inflation targeting phase to an average of 3.9% post its adoption (excluding the pandemic period).
Background:
- The inflation-targeting framework that is being followed now was based on an agreement signed between the Government and the RBI in 2015.
- In May 2016, the RBI Act, 1934 was amended to provide a statutory basis for the implementation of the flexible inflation targeting framework.
- It allowed for setting an inflation target by the Centre in consultation with the RBI, for every five years.
- Based on this framework, the Monetary Policy Committee(MPC), headed by the RBI Governor, will meet and decided on the monetary policy based on the inflation target.
Key points:
- India’s retail inflation quickened to 5% in February,2021 from 1% in the January,2021 due to price hike of food and fuel.
- Retail inflation accelerated to 5.03 per cent year-on-year, a three-month high, in February 2021 on higher fuel prices.
- Economic Affairs Secretary Tarun Bajaj stated that the goverment will be borrowing 60% of ₹12.05 trillion gross borrowing target for FY22.
About The Monetary Policy Committee(MPC):
- It is a 6 members committee which includes Shaktikanta Das (RBI Governor), Ashima Goyal, Shashanka Bhide, Jayanth R. Varma, Michael Patra, and Mridul Saggara.
Moody’s Analytics report:
- It reported that India’s Retail inflation target has held above the RBI’s 4% and CPI (Consumer Price Index) exceeded the upper band of 6% several times in 2020.
Recent Related News:
On January 1, 2021, the Reserve Bank of India (RBI) launched the January 2021 round of household surveys namely“Inflation Expectations Survey of Households (IESH)” and “Consumer Confidence Survey (CCS)” to represent inflation expectations and consumer confidence.
About Reserve Bank of India (RBI):
Establishment – 1st April 1935
Headquarters – Mumbai, Maharashtra
Governor – Shaktikanta Das
