The FIT framework was given statutory backing in May 2016 through amendments to the RBI Act, 1934. As per Section 45ZA, the government, in consultation with the RBI, is required to set an inflation target in terms of the Consumer Price Index (CPI) every five years. The target, first notified in August 2016 for 2016–2021, was retained in March 2021 until March 2026.
The discussion paper reviews India’s inflation-targeting journey over the past nine years, including the pandemic and post-pandemic phases, while drawing lessons from global experiences.
The RBI has sought views on four key issues: whether headline or core inflation should guide monetary policy; whether the 4% inflation target remains appropriate; whether the tolerance band should be changed, narrowed, widened or removed; and whether the target should be replaced with a range to preserve flexibility without losing credibility.
Highlighting emerging risks such as geo-economic uncertainties, volatile commodity prices, climate change and shifts in payment systems, the RBI said the review offers an opportunity to revisit the framework for better macroeconomic outcomes. “This review gives us an opportunity to revisit some of the basic tenets of the framework to nudge the economy towards further improved macroeconomic outcomes,” the paper stated.
The central bank said feedback can be selective and need not cover all questions, with final recommendations to be made after considering responses.
Content Source: economictimes.indiatimes.com