Former RBI Deputy Governor Rakesh Mohan has pitched for changing the central bank's inflation target band of 2-6 percent, saying inflation will not take off as long as the government is doing proper macroeconomic management. He also noted that under the current dispensation, the RBI has been mandated by the government to maintain retail inflation at 4 per cent with a margin of 2 per cent on either side.
The six-member Monetary Policy Committee (MPC), headed by the RBI governor, decides on the policy rates keeping this target in mind. Mohan said 'given the monetary policy framework these days, in some sense I would say why not change the (retail inflation) target to 5 percent not 4 percent? You are not going off to 10 percent etc.’
He further stated that the current medium-term inflation target, which was notified in August 2016, ends on March 31. The inflation target for the next five years starting April is likely to be notified this month. He opined ‘and suppose you have 5 per cent (retail) inflation target and 7 per cent growth (target), that is something one can realistically think about it. Because we have done it before, inflation does not take off as long as you are doing proper macroeconomic management.’
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