Inflation Target: India's Monetary Policy Framework
The Reserve Bank of India (RBI) operates under a flexible inflation targeting framework, mandated by the Government of India.
The Monetary Policy Committee (MPC) is responsible for setting the policy repo rate to manage inflation. The current inflation target, as set by the Government and accepted by the RBI, remains crucial for macroeconomic stability.
Inflation Target Details
The Government of India has set the inflation target for the period up to April 2026 as follows:
- Target Rate: 4%
- Tolerance Band: Plus or minus (±) 2%
This means the MPC aims to keep inflation within the range of 2% to 6% (4% ± 2%).
Correct Answer Analysis
Based on the established monetary policy framework:
- Option 1 correctly states the inflation target as 4% with a tolerance of ±2%.
- Other options present different target rates or tolerance levels not currently mandated.
Therefore, the inflation target set by the Government of India under the Monetary Policy Committee framework until April 2026 is 4% with a tolerance of ±2%.
Important Questions from Inflation
India has experienced persistent and high food inflation in the recent past. What could be the reasons?
1) Due to a gradual switchover to the cultivation of commercial crops, the area under the cultivation of food grains has steadily decreased in the last five years by about 30%.
2) As a consequence of increasing incomes, the consumption patterns of the people have undergone a significant change.
3) The food supply chain has structural constraints.
Which of the statements given above are correct?
A rapid increase in the rate of inflation is sometimes attributed to the "base effect". What is "base effect”?
Consider the following statements:
1. Inflation benefits the debtors.
2. Inflation benefits the bond-holders.
Which of the statements given above is/are correct?
Which one of the following is likely to be the most inflationary in its effect?
Hill Area Development Programmes were initiated during the _____________ Year Plan covering 15 districts.
