Govt retains 4% inflation target for RBI’s rate panel for 2021-26

The Centre 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 for the coming five years.

Daily Current Affairs Quiz 2021

This is the retail inflation target that will drive the country’s monetary policy framework and influence its decision to raise, hold or lower interest rates.

India had switched to an inflation target-based monetary policy framework in 2015, with the 4% target kicking in from 2016-17.

Many developed countries had adopted an inflation-rate focus as an anchor for policy formulation for interest rates rather than past fixations with metrics like the currency exchange rate or controlling money supply growth. Emerging economies have also been gradually adopting this approach.

In adopting a target for a period of five years, the central bank has the visibility and the time to smoothly alter and adjust its policies in order to attain the targeted inflation levels over the medium term, rather than seek to achieve it every month.