RBI Paper predicts to maintaining 4% Inflation appropriate for India

• Recommendation holds significance as it is reported that the government is considering recommending a looser inflation target for RBI, allowing it to focus more on economic growth despite price pressures.

• Inflation is good when it is mild. When prices are going up, people want to buy now rather than pay more later. This increases demand in the short term. As a result, stores sell more and factories produce more now.

Key findings:

• A steady decline in trend inflation to 4.1- 4.3% since 2014.

• Trend inflation provides a centering point for the evaluation of inflation forecasts over various time periods.

• It serves the crucial purpose of a consistency check on the setting of inflation targets.

• Paper notes that estimating trend inflation with regular updates is important for the formulation of monetary policy, irrespective of the country setting.

• Decline in the inflation persistence, indicating that households and businesses in India are becoming more forward-looking than before as credibility associated with monetary policy increases.

• Persistance is usually seen as referring to the duration of shocks hitting inflation.

———————————————

Mains Paper 3: Economy

Prelims level: Inflation

Subscribe to Get Weekly updates

Get daily current affair video, detailed current affairs PPT for quick revision and Free One Liner PDF directly in your inbox. Subscribe now to get this month's one liner for FREE.