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Target notification from the central government
The central government had initially notified the inflation target with the tolerance band on August 5, 2016, for the 2016-2021 period. The anchor or target was to be set at 4% with a band of +/- 2% around it. The target had to be achieved over a two-year horizon to balance the output costs of disinflation against the credibility in policy commitment.“In the first review conducted in March 2021, this target was retained for the subsequent five years till March 2026.
A second review of the target is now due by end-March 2026,” the paper said. The discussion paper further raises questions as to whether headline inflation or core inflation would best guide the conduct of monetary policy, given evolving relative dynamics of food and core inflation, and if the 4% inflation target continues to remain optimal for balancing growth with stability in a fast growing, large emerging economy like India.
Pivotal questions for India’s monetary future
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It also asked if the tolerance band around the target be revised in any way, including whether the tolerance band be narrowed or widened or fully done away with. And lastly, if the target inflation level be removed, and only a range be maintained within the overall ambit of maintaining flexibility without undermining credibility.It sough the public feedback till September 18.