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Maintaining inflation target at 4% is appropriate
Why is it in news?
- According to a working paper titled “Measuring Trend Inflation in India”, maintaining the inflation target at 4% is appropriate for India.
- The paper seeks to estimate trend inflation in India to find the answer to a question that goes to the root of flexible inflation targeting (FIT).
Details:
- The 4% target for inflation, with an upper tolerance limit of 6% and a lower limit of 2%, was set by the Centre in consultation with the RBI in 2016 and its validity expires on March 31, 2021.
- The paper finds a steady decline in trend inflation to 4.1- 4.3% since 2014.
- Central to the design and conduct of monetary policy is the concept of trend inflation, the level to which actual inflation outcomes are expected to converge after short-run fluctuations die out.