Government. 4% inflation target for RBI’s rate panel for 2021-26

A top finance ministry official said on Wednesday that the Center has decided to retain the inflation target of 4% with a tolerance band of +/- 2 percentage points for the Reserve Bank of India’s Monetary Policy Committee.

Economic Affairs Secretary Tarun said that under the Reserve Bank of India Act, 1924, the inflation target for the period from April 1, 2021 to March 31, 2026 has been kept at the same level as Secretary of Economic Affairs Tarun had said Bajaj. . “So there is no change,” he said.

He dismissed the question as to whether the focus was on core inflation or any other component of retail inflation and indicated that the structure would remain the same.

Despite recent speech by high inflation prints beyond the 6% upper limit of the inflation target, economists welcomed continuity in the framework.

Member of the Fourteenth Finance Commission and former Director M. Govinda Rao said, “The 2% limit as a flexible inflation target has worked quite well as a flexible inflation target and continuing with the same target will not disturb the monetary policy framework.” National Institute of Public Finance and Policy. “Inflation has breached the 6% mark in some time recently, but it has been during an exceptional situation in the economy,” he said.

The ministry’s decision sparked speculation about considering the government’s lax inflation target to enable it to have a more growth-oriented focus in monetary policy, despite the high inflation seen in recent months for the central bank. The retention of the 4% target also suggests that the government is in agreement with RBI officials that there is no need to tamper with the inflation target.

In the RBI report on currency and finance for 2020-21 released in February, officials emphasized that “the current numerical framework for defining price stability, that is, an inflation target of 4% with a +/- 2% tolerance band. “Was appropriate. For the next five years.

And in December, Michael D. Patra, the deputy governor of the central bank oversees monetary policy, and co-author Harendra Kumar Behera stated in a paper: “The central tendency for the design and operation of monetary policy is the concept of inflation, from a variety of sources. Consequences of real inflation are expected to converge after short-term fluctuations. ”

Citing a steady decline of 4.1–4.3% in trend inflation since 2014, the paper’s authors stated that a target set below the trend also provides a disregard bias for monetary policy because it is what the economy internally Will be overkill relative to what can bear. Order to achieve the goal. Basically, a target that is set above the trend also increases monetary policy and is prone to inflationary shocks and unbearable expectations.