Reserve Bank of India Opens Public Consultation on Maintaining 4% Inflation Target - Your Voice Matters!

RBI Puts Inflation Policy Under Microscope - Public Weighs In

The 4% Question

India's central bank throws open its doors for feedback on whether to stick with the current inflation benchmark. No new data revealed - just the existing 4% figure hanging in the balance.

Public Versus Policy

Citizens and experts get unprecedented say in monetary strategy. The consultation cuts through traditional bureaucratic channels, putting power directly in stakeholders' hands.

Because apparently letting the public debate inflation targets works better than letting them actually afford things.

RBI defends current rules as successful

The paper argued that the current rules have aided disinflation while preserving room to respond to external shocks. “Justifications for pursuing with the target and the framework stem from the relative success in bringing disinflation as well as flexibility in responding to exogenous shocks,” it said.

The RBI also flagged potential costs to changing the objective. Raising the target above 4% could be read by investors as weakening the framework, while lowering it may be hard to justify amid higher global food prices.

Dropping a point target and relying solely on a band could be perceived as “indifference” to inflation outcomes, it added.

Its analysis suggests trend inflation has hovered around 4% since the framework began in 2016.

The government, in consultation with the RBI, will make the ultimate decision on any modifications.

“The conduct of monetary policy frameworks needs both policy certainty and credibility,” the paper said, adding, “It is, therefore, important that the basic tenets of the framework that have been tested and judged to be favourable are continued.”

Previous economic survey proposal sparked debate on policy focus

Last month’s official economic report also floated targeting inflation that excludes volatile food prices, often driven by supply shocks. That proposal has stirred debate over the most appropriate policy target for India.

Cryptopolitan previously highlighted how global trade uncertainty and domestic food inflation are influencing the RBI’s decisions.

India adopted inflation targeting in 2016, assigning a 4% headline goal to the RBI’s Monetary Policy Committee (MPC). Because food costs have kept headline inflation above that mark even as core fell to about 3%, a record low, some analysts have urged the MPC to put more weight on the latter.

Shashanka Bhide, an external MPC member, said gauging underlying price pressures requires looking at the full consumption basket.

“If we use a partial basket for a target then it WOULD not reflect the overall price pressures and if the target is the core alone, then it should in some way capture the trend of food inflation or fuel inflation if not the volatility,” Bhide told Reuters.

Made up of three RBI officials and three government-appointed externals, the MPC has held the repo rate at 6.5% for nine consecutive meetings, citing persistent food inflation. Economic growth is projected to slow to 7.2% this fiscal year from 8.2% last year.

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