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Consider the following statements regarding the inflation targeting in Indian economy:
1. Inflation targeting is a statutory and institutionalised framework under the RBI Act, 1934.
2. Inflation target is set up by the RBI in consultation with the central government.
Which of the statements given above is/are correct?
- a)1 only
- b)2 only
- c)Both 1 and 2
- d)Neither 1 nor 2
Correct answer is option 'A'. Can you explain this answer?
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Most Upvoted Answer
Consider the following statements regarding the inflation targeting in...
- In 2016, the Reserve Bank of India Act, 1934 (RBI Act) was amended to provide for a statutory and institutionalised framework for a Monetary Policy Committee (MPC). The Preamble in the RBI Act, as amended by the Finance Act, 2016, now provides that the primary objective of the monetary policy is to maintain price stability, while keeping in mind the objective of growth, and to meet the challenge of an increasingly complex economy. RBI would, accordingly, operate a Monetary Policy Framework. Thus, now there is a statutory basis for a Monetary Policy Framework and the MPC. Hence statement 1 is correct.
- A Committee-based approach will add lot of value and transparency to monetary policy decisions. Out of the six Members of MPC, three Members will be from the Reserve Bank of India (RBI), including the Governor, RBI, who will be the ex-officio Chairperson, the Deputy Governor, RBI and one officer of RBI. The other three Members of MPC will be appointed by the Central Government, on the recommendations of a Search-cum-Selection Committee. These three Members of MPC will be experts in the field of economics or banking or finance or monetary policy and will be appointed for a period of 4 years and shall not be eligible for re-appointment. The meetings of the MPC shall be held at least 4 times a year and it shall publicise its decisions after each such meeting.
- Under the new statutory framework, the central government would, in consultation with the Reserve Bank of India (RBI), set an inflation target based on the consumer price index (CPI) once every five years. The RBI was entrusted with the responsibility of meeting this target (“accountability”), for which it would be given “independence” in the conduct of monetary policy. Hence statement 2 is not correct. The inflation target of the Reserve Bank of India is 4 percent, with a 2 per cent extension in the upper bound and 2 per cent in the lower bound.
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Consider the following statements regarding the inflation targeting in...
Explanation:
Inflation targeting is a framework in which a central bank, such as the Reserve Bank of India (RBI), uses an explicit target for the inflation rate to guide monetary policy decisions.
1. Statement 1:
- This statement is correct. Inflation targeting in India is a statutory and institutionalized framework under the RBI Act, 1934. The Reserve Bank of India Act, 1934 was amended in 2016 to provide a statutory basis for the implementation of the inflation targeting framework.
2. Statement 2:
- This statement is incorrect. The inflation target is set by the Monetary Policy Committee (MPC) of the Reserve Bank of India and not in consultation with the central government. The MPC is responsible for setting the inflation target and making decisions on monetary policy based on achieving that target.
Therefore, the correct answer is option 'A' - 1 only. Inflation targeting in India is a framework mandated by law and implemented by the RBI through the MPC, without direct consultation with the central government.
Inflation targeting is a framework in which a central bank, such as the Reserve Bank of India (RBI), uses an explicit target for the inflation rate to guide monetary policy decisions.
1. Statement 1:
- This statement is correct. Inflation targeting in India is a statutory and institutionalized framework under the RBI Act, 1934. The Reserve Bank of India Act, 1934 was amended in 2016 to provide a statutory basis for the implementation of the inflation targeting framework.
2. Statement 2:
- This statement is incorrect. The inflation target is set by the Monetary Policy Committee (MPC) of the Reserve Bank of India and not in consultation with the central government. The MPC is responsible for setting the inflation target and making decisions on monetary policy based on achieving that target.
Therefore, the correct answer is option 'A' - 1 only. Inflation targeting in India is a framework mandated by law and implemented by the RBI through the MPC, without direct consultation with the central government.
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Consider the following statements regarding the inflation targeting in Indian economy:1. Inflation targeting is a statutory and institutionalised framework under the RBI Act, 1934.2. Inflation target is set up by the RBI in consultation with the central government.Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'A'. Can you explain this answer?
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