Inflation Targeting

Date: March 03, 2015

Inflation Targeting Urjit Patel panel inflation

Union Government and RBI sign agreement to keep inflation below 6%

 

Central Government and the RBI have signed an agreement on Monetary Policy Framework in order to move towards the RBI Governor Raghuram Rajan’s view of inflation targeting. As per this agreement government has set a target for RBI to bring down inflation below 6 per cent by January 2016. 4 per cent for financial year and all subsequent years with band of +/- 2 percent.

Inflation Targeting-

Inflation Targeting is a monetary policy strategy used by central banks for maintaining prices a certain level or within a specific range. Using methods such as interest rate changes, this could help guide inflation to a targeted level or range.

It helps in putting a quantitative target and fixed target horizon, leads to stabilization of the inflationary expectations and would stimulate economic activity. It also gives independence to central banks to target inflation using  any instrument they want to use. This targeting helps to manage exchange rate volatility and  It enhances the long term economic performance.

Urjit Patel panel was established on Inflation Targeting.