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Budget 2021 | Centre considers proposal to raise inflation target to 5%: Report

Retail inflation, measured as Consumer Price Index (CPI), declined in December 2020 to 4.59 percent from 6.93 in November.

January 28, 2021 / 10:19 AM IST
(Image: Shuttershock)

(Image: Shuttershock)

The government is mulling to raise the inflation target to 5 percent from the current 4 percent, which may give the Reserve Bank of India (RBI) more room to cut policy rates.

The government might hike the inflation target to 5 percent, which is a part of the monetary policy framework, with a tolerance level of plus and minus 2 percent from 1 April, Mint reported.

The decision might be announced during the upcoming Budget for FY22, along with other fiscal measures, the report said.

Moneycontrol could not independently verify the story.

The Ministry of Finance and RBI did not respond, when contacted by Mint.

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Also read - 'If it ain't broke, don't fix it': RBI working paper says 4% inflation target is good for India

According to the RBI Act, 1934 the inflation target needs to be passed by Parliament.

"We expect a consensus to emerge soon as the government intends to get it passed in the current Budget session," a source told the publication.

In 2016, the government notified the existing inflation target for the duration of August 5, 2016 to March 31, 2021. The inflation target of 4 percent has a lower tolerance limit of 2 percent and upper tolerance limit of 6 percent.

Also read: Inflation Analysis | Retail prices fell sharply in December. Here's what happened

Retail inflation, measured as Consumer Price Index (CPI), declined in December 2020 to 4.59 percent from 6.93 percent in November.

An RBI working paper authored by Harendra Kumar Behera and Michael Debabrata Patra said the inflation target should be maintained at 4 percent.
Moneycontrol News
first published: Jan 28, 2021 10:08 am

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