Centre’s inflation target could help macro stability

Background: Inflation, Monetary Policy Committee, RBI, Moody’s Investors Service.

  • According to Moody’s Investors Service, at a time when public sector spending is set to rise due to wage increases this year, the moderate inflation target set by the government is a positive for the country’s credit profile and could prevent spillovers into other sectors.
  • The Centre notified its inflation target of 4 percent, with an upper limit of 6 percent and lower bound of 2 percent, up to 2021.
  • Earlier, the Centre had said that it had put in place a statutory and institutional framework for the Monetary Policy Committee – the body that will soon be in charge of setting interest rates.
  • The changes to the monetary policy regime of the last two years mark a step towards greater policy transparency and predictability, both of which should help in policy transmission and hence monetary policy effectiveness.

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