SME Times is powered by   
Search News
Just in:   • Sebi issues procedural guidelines for proxy advisors  • Bandhan Bank promoter sells 21% stake to meet RBI norm  • Fitch cuts US credit outlook to "negative" from "stable"  • MSME ministry approves scheme for 'agarbatti' production  • SpiceJet brings back 269 Indians from Amsterdam 
Last updated: 17 Dec, 2019  

RBI.9.Thmb.jpg 'Flexible inflation targeting be reviewed only after March 2021'

   Top Stories
» MSME ministry approves scheme for 'agarbatti' production
» Increase outstanding dues limit for MSMEs under ECLGS: AEPC
» RBI rate cut likely; Rupee may weaken further
» Need for personal mobility pushes auto sales
» Focus is now on loan restructuring: FM
SME Times News Bureau | 13 Dec, 2019

The RBI's Flexible inflation targeting framework will be reviewed only after March 2021, its Executive Director Micheal Patra has told analysts.

Flexible inflation targeting is a monetary policy strategy used by the Central bank to maintain the price level within a certain range. This strategy indicates the importance of price stability as the prime factor of monetary policy.

Inflation targeting is known to bring more stability, predictability, and transparency in deciding monetary policy. This is because of the argument that rising prices create uncertainties and adversely affect savings and investments.

A pact was signed by then Finance Secretary Rajiv Mehrishi and then RBI Governor Raghuram Rajan, saying the primary target of monetary policy would be to achieve price stability, while keeping in mind the growth objective.

The inflation range has been modified from time to time under the flexible inflation policy. Under this policy, India adopted a flexible inflation targeting mandate of 4 (+/-2) per cent and headline consumer price inflation was chosen as the nominal anchor.

Flexible inflation targeting was followed in 2015. The framework made RBI more accountable to explain to the government if it fails to meet the inflation targets. The flip side of this is such targets will restrain RBI from taking any aggressive or accommodating monetary policy stance. This has put India on par with other nations in terms of flexible inflation targeting.

"If you see those RBI projections, then nominal GDP growth falling below the interest rate and government borrowings is likely to be a one-quarter phenomenon. And nominal GDP is projected to rise in the quarters ahead. As far as the regime is concerned, RBI has been mandated to conduct flexible inflation targeting, and this framework will be reviewed only after March 2021," Patra told analysts during a concall post monetary policy.

In its monetary policy briefing, RBI Governor Shaktikanta Das had said the real GDP growth has moderated to 4.5 per cent year-on-year (y-o-y) in Q2:2019-20, extending sequential deceleration to the sixth consecutive quarter.

The slowdown in GDP growth was cushioned by a jump in Government Final Consumption Expenditure (GFCE).

On the supply side, Gross Value Added (GVA) growth decelerated to 4.3 per cent in Q2:2019-20, pulled down by contraction in manufacturing. Growth in the services sector moderated, but agricultural GVA growth increased marginally.

He had also said the Consumer Price Inflation (CPI) increased sharply to 4.6 per cent in October, propelled by a surge in food prices. Fuel group prices remained in deflation, while inflation in CPI, excluding food and fuel, moderated further from its level a month ago, reflecting the underlying weakness in domestic demand conditions.

Survey responses indicate that households' inflation expectations increased by 120 basis points over the 3-month ahead horizon and 180 basis points over the 1-year ahead horizon as they adapted to the spike in food prices in recent months.

Manufacturing firms expect weak demand conditions and reduced input price pressures in Q3:2019-20 and Q4, but they also expect muted output prices reflecting further weakening of pricing power.

Taking into account these developments, the MPC revised the CPI inflation projection upwards to 5.1-4.7 per cent for H2:2019-20 and 4.0-3.8 per cent for H1:2020-21, with risks broadly balanced.

Real GDP growth for 2019-20 is revised downwards from 6.1 per cent in the October policy to 5 per cent-4.9-5.5 per cent in H2 and 5.9-6.3 per cent for H1:2020-21.

Print the Page
Add to Favorite
Share this on :

Please comment on this story:
Subject :
(Maximum 1500 characters)  Characters left 1500
Your name:

  Customs Exchange Rates
Currency Import Export
US Dollar
UK Pound
Japanese Yen 58.85 56.85
As on 04 Aug, 2020
  Daily Poll
COVID-19 has directly affected your business
 Can't say
  Commented Stories
» Textile opportunities in Finland: An export snapshot (1)
» Petrol, diesel prices unchanged for third day(1)
» Pain points for MSMEs(1)
» SBI's centralised SME loan process to ensure better loan processing(1)
» Focus is now on loan restructuring: FM(1)
About Us  |   Advertise with Us  
  Useful Links  |   Terms and Conditions  |   Disclaimer  |   Contact Us  
Follow Us : Facebook Twitter