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The government on Wednesday decided to continue with the inflation targeting regime, in the range of 2-6 per cent, for the next five fiscal years beginning April 1.
Economic Affairs Secretary Tarun Bajaj said there is no change in the target. He also made it clear that the base of headline retail inflation will continue. Many economists had suggested adopting core retail inflation (excluding volatile items such as fuel and food) as the benchmark.
With this the Government and the Reserve Bank of India will take forward the new Monetary Policy framework. Based on this framework, the Monetary Policy Committee, headed by the RBI Governor, will meet from April 5 to 7 and its resolution will be announced on April 7. This will be first of the bi-monthly meetings of the committee.
The framework is based on an agreement signed between Centre 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 provided for setting an inflation target by the Centre in consultation with the RBI every five years.
The 2016 agreement listed factors that constitute failure to achieve the inflation target —. the average inflation ruling above the upper tolerance level and falling below the lower cap for any three consecutive quarters.
The new framework will continue with these norms.
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