NEW DELHI: India adopted an inflation target of 4% for next five years under the monetary policy framework as previously agreed and in line with the Centre’s focus on macroeconomic stability to boost growth while keeping prices in check.
The finance ministry has notified the consumer inflation target for RBI until March 31, 2021, with an upper tolerance level of 6% and lower limit of 2% that was finalised in consultation with Governor Raghuram Rajan, whose term ends next month. This prepares the ground for setting up Monetary Policy Committee that will set rates in keeping with this target. RBI currently sets the rate.
“Fixation of an inflation target while giving due emphasis to the objective of growth and challenges of an increasingly complex economy is an important monetary policy reform,” the finance ministry said in a release on Friday. Inflation based on the consumer price index (CPI) in June was at 5.77%, close to the upper end of the band, which all but rules out a reduction in rates in the near term.
