Reserve Bank of India (RBI) Executive Director Micheal Patra, talking with analysts, informed that the RBI’s Flexible inflation targeting framework will be reviewed only after March 2021.
The flexible inflation targeting is a money-based strategy that indicates the importance of price stability as the prime factor of monetary policy. This strategy is used by the Central bank to maintain the price level within a certain range.
The rising prices create uncertainties and adversely affect savings and investments. On the contrary, inflation targeting policy brings more stability, predictability, and transparency in deciding monetary policy.
Identifying the primary target of monetary policy as achieving price stability with an eye for the growth, the then Finance Secretary Rajiv Mehrishi and then RBI Governor Raghuram Rajan signed a pact in this connection.
India adopted a flexible inflation targeting mandate of 4 (+/-2) per cent and headline consumer price inflation was chosen as the nominal anchor which was followed in 2015. This framework has made RBI more accountable to explain to the government if it fails to meet the inflation targets. On the contrary, such targets will restrain RBI from taking any aggressive or accommodating monetary policy stance.