Q. Consider the following statements regarding the flexible inflation targeting (FIT) framework of Reserve Bank of India:
1. The inflation target is set by the Government of India, in consultation with the Reserve Bank every year.
2. RBI’s flexible inflation targeting places price stability, in terms of Consumer Price Index inflation, as the primary objective of the monetary policy.
Which of the statements given above is/are correct?
India formally adopted flexible inflation targeting (FIT) in June 2016 to place price stability, defined in terms of a target CPI inflation, as the primary objective of the monetary policy.
In May 2016, the Reserve Bank of India (RBI) Act, 1934 was amended to provide a statutory basis for the implementation of the flexible inflation targeting framework.
The amended RBI Act also provides for the inflation target to be set by the Government of India, in consultation with the Reserve Bank, once in every five years. Accordingly, the Central Government has notified in the Official Gazette 4 per cent Consumer Price Index (CPI) inflation as the target for the period from August 5, 2016 to March 31, 2021 with the upper tolerance limit of 6 per cent and the lower tolerance limit of 2 per cent.
Source: ForumIAS
