• The Centre has decided to retain the inflation target of 4%, with a tolerance band of +/- 2 percentage points for the Monetary Policy Committee (MPC).
• RBI in its report had stressed that the current numerical framework for defining price stability was appropriate for the next five years.
• The amended RBI Act of 2016 provided for the inflation target to be set by the Government of India, in consultation with RBI, once in every five years.
• Inflation targeting is a monetary policy system wherein the central bank of a country has a specific target inflation rate for the medium-term and publicises this rate. This is done by the MPC in India.
• MPC was set up on the recommendation of Urjit Patel Panel.
• MPC is formed with six members:
• Three members are from the RBI while the other three members are appointed by the government.
• RBI Governor acts as the Chairman.
• The government members are appointed by the Centre on the recommendations of a search-cum-selection committee which is to be headed by the Cabinet Secretary.
Mains Paper 3: Economy
Prelims level: Monetary Policy Committee
Mains level: Read the newsfeed