Radical changes in Inflation Targeting Regime could be Counterproductive: NCAER | Current Affairs | Vision IAS
News Today Logo

Radical changes in Inflation Targeting Regime could be Counterproductive: NCAER

Posted 21 Aug 2024

2 min read

National Council for Applied Economic Research (NCAER) released a Working Paper titled ‘Inflation Targeting in India: A Further Assessment’ which assessed India’s inflation-targeting regime at the completion of 8-year.

Inflation Targeting Regime in India

  • It provides that primary objective of the monetary policy is to maintain price stability, while keeping in mind the objective of growth.
  • Introduced in 2015 through Monetary Policy Framework Agreement between the Union Government and the RBI.
    • Later in 2016, the RBI Act was amended which gave statutory basis for a Monetary Policy Framework and the Monetary Policy Committee (MPC).
  • Target: RBI to target Consumer Price Index (CPI) inflation at 4%, with a tolerance band of +/- 2% (i.e., 2-6%) subject to review every 5 years. 
  • MPC consists of 6-members - 3 ex officio members from the RBI and 3 external members appointed by Union Government.

 Key findings of the Paper

  • Broadening the mandate of the RBI: To include responsibility for corporate bond market development, etc., can reduce time and focus on achieving price stability and hinder the accountability of the RBI.
  • Moving to Core inflation against Headline inflation: Neglecting food price inflation for an extended period can have negative consequences.

Headline vs. Core Inflation

  • Headline Inflation: It is based on the CPI – Combined which is a measure of total inflation in the economy.
    • It measures price rise in food, fuel, and all other commodities.
  • Core Inflation: It measures price rise in commodities, excluding food and fuel items which are more volatile in nature.
  • Tags :
  • Inflation Targeting
  • Headline Inflation
  • Core Inflation
  • NCAER
Watch News Today