Policy Framework Review: RBI should keep inflation firmly in its intersections

Copyright © HT Digital Streams Limit all rights reserved. The Reserve Bank of India (RBI) released a discussion document (DP) last Thursday about its monetary policy framework. (Reuters) Summary The call from the central bank to feedback on his monetary policy framework is welcome. In general, flexible inflationary equipment has served India well so far. But every review is an opportunity to make it better. The Reserve Bank of India’s (RBI) Discussion Document (DP) on its monetary policy framework, which was released last Thursday as part of a five annual review mandate, poses four key questions that the central bank asked feedback. First, should the monetary policy -target -head inflation, as is currently under the flexible inflation target (FIT) regime set in 2016, or nuclear inflation (ie the head inflation stripped of volatile elements such as food and fuel)? The answer to this is simple and the DP of RBI also appears to be concluded; namely, for a country like India, where food is a significant part of the consumption basket (near 46%) for a large number of form, is meaningless to target core instead of a head inflation. The weight of the food component, in any case, will fall anyway as soon as the consumer price index has been recreated based on a more up-to-date household consumption expenses for 2023-24, compared to the 2011-12 data used today. The exercise is already underway, so we can expect the impact of a volatile food basket in the non-distant future. Also read: Should the tariff setting panel track headline or nuclear inflation? RBI stirs second place in second place, or RBI’s current 4% goal remains optimal when it comes to balancing growth with stability in a fast -growing economy. Here, the DP argues in favor of the status quo on the grounds that the existing framework with 4% as the central purpose of RBI served us well. We agree with the assessment. Despite the challenges in the nine years since the fitness, including the Covid pandemic and the high inflation years that followed, the rate of rising price levels had a clear decline, with the average since the adoption of 4.9% versus 4.9% versus an average of 6.8% during the pre-appropriate period. Also read: Mint Quick Edit | Inflation: Below the target, above the line of concern, or the tolerance tape of 2-6% must be revised (that is,, narrow, expand or drop completely). Here, too, we match RBI’s statement that the “band of +/- 2 percent sufficient flexibility to the [Monetary Policy Committee] to focus on inflation or growth, depending on the developing situation. “The pace is still a job going on in India. The institutional experience and memory needed. In addition, our financial markets are not as deep as the Western markets. The DP’s fourth question is whether the target of 4% should be scrapped and only a series of maintenance. insured, in the past.