Maintaining 4 percent inflation is suitable for India, as targeting lower interest rates can give deflationary bias to monetary policy, the Reserve Bank paper said.  Under current situation, the RBI is mandated by the government to maintain retail inflation at 4% and have a margin of 2% on either side.
Written by RBI Vice President Michael Devabrata Patras and another official Harendra Kumar Behera, the paper found that trend inflation has steadily declined to 4.1-4.3 percent since 2014.
“Sub-trend goals give monetary policy a deflationary bias because they are too much in excess of what the economy can inherently withstand to reach them.  “Likewise, a fixed target above the trend is likely to overextend monetary policy and fall into inflationary shocks and unfixed expectations. Therefore, maintaining an inflation target of 4% is appropriate for India. “The RBI said in a paper-based presentation. ..

In India, this exercise will be prioritized in the context of a flexible inflation target, officially launched in June 2016. This will allow the Central Bank (RBI) to reach its 4% CPI target with a +/- 2 symmetry tolerance. Percentages around it, the author said.

According to the RBI, the authors are from the RBI, and the views expressed in the treatise are those of the authors, not necessarily those of the institutions to which they belong. Inflation targets need to be reviewed by the end of March 2021. In this context, trend inflation provides an indicator for measuring the appropriate level of future goals.

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