With the term of the current monetary policy committee ending in September, it’s time to review the performance of the rate-setting framework
Last year, there were calls to review RBI’s inflation targeting framework. With the term of the current monetary policy committee ending in September, it’s time to review the performance of the rate-setting framework. Mint explains the debate around this.
* What are the terms of the policy framework?
In 2016, the government amended the Reserve Bank of India Act (1934) and institutionalized a framework for a monetary policy committee (MPC), which was mandated to maintain price stability while keeping the objective of growth. MPC was given a policy tool of the repo rate in order to ensure inflation was within a target level. The inflation target given to MPC was 4%, with 6% as the upper tolerance level and 2% as the lower tolerance level. That is, MPC was supposed to adjust the repo rate in order to ensure that inflation stayed within two percentage points of the target of 4%.
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