RBI Releases Discussion Paper on Policy Framework; seeks views on retaining 4% CPI TARGET – CNBC TV18

The reserve bank of India (rbi) on thursday released a discussion paper on the review of the monetary policy framework (MPF), Inviting Stakeholder Feedback on Key Questions Inflation targeting regime. Comments have been sought by September 18.

The central bank has been asked wheether the 4% inflation target remains optimal for balancing growth with price stability, if the tolerance band of 2-6% should be revised or removed, and whether monetary policy should be guided by headline or core consumer price inflation (CPI). The rbi has also sought views on where a fixed target level should be replaced with a range.

In Its paper, the RBI cautioned that shifting to range targeting count Ambiguity, as members of the monetary policy reporte (mpc) May interpret the mid-politics. Such a shift out “This could be inconsistent with the trend inflation, which is estimated to be close to 4%,” the RBI noted.

The flexible inflation targeting framework was adopted in 2016, with the government setting the CPI Target at 4% Within a tolerance band of 2–6%. The framework was reviewed and retained in 2021 for another five years, ending March 2026. While breaching the upper limit in nine Quarters, Largely during 2020–2022.

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The paper highlighted that if India had opted for a range of 4-6% in 2016, policy “Failures” would have been recorded on three owners, compared to only one under the currents, right to Undershooting the lower bound.

On the tolerance band, the rbi noted that flexibility has allowed policmakers to manage trade-offs, especially during the Pandemic when TON GROWTH TOOK PRECEDENCE Information Remedation Remedation Remed A Narrower Band, however, even the creation of credibility by anchoring expectations more firmly.

Another Critical Question Raised is Whether Headline Inflation or Core Inflation Should Guide Policy. While some argue that food inflation is supply-Driven and outside the direct scope of monetary policy, former governor Shaktikanta Das had stressed in 2024 that excluding food would “make no sense to the average citizen” Since Headline Inflation reflections the cost of living most accurately.

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The RBI concluded that food and fuel, which togeether make up more than 50% of the cpi basket, cannot be ignored when anchoring expectations. Headline CPI, It Said, May TheRefore Be the More Appropeate Benchmark.