Govt sticks to 4% inflation goal for RBI

0
4
Govt sticks to 4% inflation goal for RBI


The government on Wednesday asked the Reserve Bank to maintain retail inflation at 4 per cent with a margin of 2 per cent on either side for another five-year period ending March 2026. To control the price rise, the government in 2016 gave a mandate to the RBI to keep the retail inflation at 4 per cent with a margin of 2 per cent on either side for a five-year period ending March 31, 2021.

The inflation target for the period April 1, 2021 to March 31, 2026 under the Reserve Bank of India Act 1934 has been kept at the same level as was for previous 5 years,” Economic Affairs Secretary Tarun Bajaj said. As a result of inflation targetting mandate, the RBI has been able to keep consumer price index averaging 3.9 per cent during October 2016-March 2020.

The six-member MPC, which had its first meeting in October 2016, was given the mandate to maintain annual inflation at 4 per cent until March 31, 2021 with an upper tolerance of 6 per cent and a lower tolerance of 2 per cent. Not only did the headline CPI inflation averaged closer to the target at 3.9 per cent during this period, inflation volatility, measured by its standard deviation, also declined to 1.4 during October 2016-March 2020 from 2.4 in 2012-16, as per the BofA Securities report quoting the RBI data.

The RBI last month said the existing regime is effective and recommended that the band be retained. It suggested some aspects of the framework be reviewed, including the time horizon for the bank to meet the target and the process of admitting members to the Monetary Policy Committee. Commenting on the government’s decision, ICRA Principal Economist Aditi Nayar said the continuation of the MPC’s inflation targeting band at 2-6 per cent is welcome, as an upward revision could have contributed to an unanchoring of inflation expectations. On inclusion of government bonds in global indices, Bajaj said, efforts are on and something on that front should happen next financial year.

The move would attract higher foreign flows as many overseas funds are mandated to track global indices. It will also help bring in large passive investments from overseas, as a result of which more domestic capital would be available for industry as crowding out would be reduced. The government and RBI are working on inclusion of Indian sovereign bonds in global bond indices. Globally, there are some large institutional investors that track these indices, such as Bloomberg Barclays Emerging Market Bond index, for positional decisions on sovereign papers.

To facilitate this, the RBI last year opened certain specified categories of government securities (G-Secs) for non-resident investors as part of an initiative to deepen the bond market. RBI, in a notification, had said that a separate route namely Fully Accessible Route (FAR) for investment by non-residents in securities issued by the Government of India has been notified.

Allaying apprehensions on impact of large borrowing on private investment, Bajaj said there is ample liquidity in the market. As a result, the cost of borrowing for the government also declined this year, he added. There are other alternatives before the government, including the National Social Security Fund (NSSF).



Source link

LEAVE A REPLY

Please enter your comment!
Please enter your name here