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What is inflation targeting? How does the inflation targeting framework operate in India?
Inflation targeting is a monetary policy framework where a central bank sets a specific inflation rate as its target and uses monetary policy tools to achieve and maintain price stability. In India, the inflation targeting framework was adopted in 2016, and the Reserve Bank of India (RBI) is responsRead more
Inflation targeting is a monetary policy framework where a central bank sets a specific inflation rate as its target and uses monetary policy tools to achieve and maintain price stability. In India, the inflation targeting framework was adopted in 2016, and the Reserve Bank of India (RBI) is responsible for its implementation.
Here’s how it operates in India:
1. Target: The RBI sets an inflation target of 4% with a tolerance band of +/- 2% (i.e., 2-6%).
2. Framework: The RBI uses a flexible inflation targeting framework, which means it considers growth and other macroeconomic factors while setting policy rates.
3. Tools: The RBI uses monetary policy tools like the repo rate (short-term lending rate), reverse repo rate, and open market operations to manage liquidity and inflation.
4. Decision-making: The RBI’s Monetary Policy Committee (MPC) meets every two months to review inflation trends, growth, and other factors to decide on policy rates.
5. Communication: The RBI communicates its inflation projections and policy decisions to the public, ensuring transparency and accountability.
By adopting an inflation targeting framework, India aims to maintain price stability, promote economic growth, and enhance the credibility of monetary policy.
See lessWhat is inflation targeting? How does the inflation targeting framework operate in India?
Inflation targeting is a monetary policy framework where a central bank sets a specific inflation rate as its target and uses monetary policy tools to achieve and maintain price stability. In India, the inflation targeting framework was adopted in 2016, and the Reserve Bank of India (RBI) is responsRead more
Inflation targeting is a monetary policy framework where a central bank sets a specific inflation rate as its target and uses monetary policy tools to achieve and maintain price stability. In India, the inflation targeting framework was adopted in 2016, and the Reserve Bank of India (RBI) is responsible for its implementation.
Here’s how it operates in India:
1. Target: The RBI sets an inflation target of 4% with a tolerance band of +/- 2% (i.e., 2-6%).
2. Framework: The RBI uses a flexible inflation targeting framework, which means it considers growth and other macroeconomic factors while setting policy rates.
3. Tools: The RBI uses monetary policy tools like the repo rate (short-term lending rate), reverse repo rate, and open market operations to manage liquidity and inflation.
4. Decision-making: The RBI’s Monetary Policy Committee (MPC) meets every two months to review inflation trends, growth, and other factors to decide on policy rates.
5. Communication: The RBI communicates its inflation projections and policy decisions to the public, ensuring transparency and accountability.
By adopting an inflation targeting framework, India aims to maintain price stability, promote economic growth, and enhance the credibility of monetary policy.
See less