NEW DELHI: After extensive consultation, govt has decided to retain the retail inflation target for the monetary policy committee at 4%. For the next five years, the tolerance band of 2-6% has also been retained, according to a notification issued by the finance ministry on Wednesday.The targets have been in place for 10 years now and were widely expected to be retained. RBI had floated a discussion paper in which it had pointed out that the flexible inflation targeting (FIT) framework had seen price rise stay within the band for three-fourths of the first review period (starting Aug 2016) and two-thirds of the second review period.It had argued for continuation of the framework, amid calls for a review from a section led by CEA V Anantha Nageswaran. “The conduct of monetary policy frameworks needs both policy certainty and credibility. This has become particularly important during the current environment of heightened uncertainty. It is, therefore, important that the basic tenets of the framework that have been tested and judged to be favourable are continued. The adaptability and flexibility already inbuilt into the extant framework should be leveraged to nudge the economy towards further improved macroeconomic outcomes,” RBI had said.Nageswaran had suggested that core inflation, which excludes volatile food and energy prices, should be used, given that food had a large weight.
