Govt. retains 4% inflation target for RBI’s rate panel for 2021-26

• 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.

About MPC:

• 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.

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Mains Paper 3: Economy

Prelims level: Monetary Policy Committee

Mains level: Read the newsfeed

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