Government Fixes an Inflation Target of 4 Percent for Five Years [ Current Affairs - Economics ]

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 Union government fixes an inflation target of 4% for the period of next five years. (Till March 31, 2021). This inflation target of 4 % can help moderate future price rises. It’s also support macroeconomic stability.

Image shows the inflation

Image shows the inflation

showing image of inflation

Key Details:

  • Government decision is to properly implement its central inflation target.
  • Parliament introduces the target of four percent plus or two percent minus. So, there was no legal backup to it.
  • Confirmation of the Inflation fighting policies by union government and RBI governor Raghuram Rajan.
  • An explicit target helps to price expectations and it’s also keep actual inflation at moderate level.
  • Government’s implementation was credit positive and its commitment to focus on controlling price rises.
  • It also helps to prevent a repetition of the short marked cycles of the past.
  • Inflation target 4% percent for Asia’s third-largest economy and it’s a history of unpredictable prices.
  • Government notified rules for setting up the MPC giving effect to amendments in the RBI act in June 2016.

Inflation Targeting:

  • Inflation targeting is a monetary policy. Explicit target inflation rate for the medium term in central bank and announces this target to public is called inflation targeting.
  •  It’s helpful to support long term growth of economy. Central bank uses interest rate is a short term monetary instrument.
  • Main benefit of the target is that allow to recognize the short run trade-offs between inflation and growth.

- Published on: August 8, 2016