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.