Calling for a re-examination of the framework, the Survey said when food prices rose, inflation targets came under threat, prompting the central bank to appeal to the government to bring down prices of food products. This, in turn, prevents farmers from benefiting from the rise in prices.
One of the reasons for adopting the consumer price index as the RBI's target is that it is easy to communicate to the people.
"It is the food prices that matter the most. Governments have fallen due to high onion prices," said a central-bank watcher.
A committee headed by former RBI governor Urjit Patel (he was deputy governor then) had recommended the CPI to be the RBI's target.
In May 2016, the RBI Act, 1934, was amended to provide a statutory basis for implementing the flexible inflation-targeting framework. On March 31, 2021, the central government retained the inflation target and the tolerance band for the next five-year period April 1, 2021, to March 31, 2026. The RBI's retail inflation target is 4 per cent, with a variation of 2 per cent on either side.
This story is from the July 27, 2024 edition of Business Standard.
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This story is from the July 27, 2024 edition of Business Standard.
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