TIL Desk/Business/New Delhi/ Maintaining 4 per cent inflation is appropriate for India as targeting a lower rate could impart deflationary bias to the monetary policy, said a Reserve Bank paper. 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 paper, authored by RBI Deputy Governor Michael Debabrata Patra and another official Harendra Kumar Behera, has found a steady decline in trend inflation to 4.1-4.3 per cent since 2014. “A target set too below the trend imparts a deflationary bias to monetary policy because it will go into overkill relative to what the economy can intrinsically bear in order to achieve the target.
“Analogously, a target that is fixed above-trend renders monetary policy too expansionary and prone to inflationary shocks and unanchored expectations. “Hence, maintaining the inflation target at 4 per cent is appropriate for India,” RBI said in a release based on the paper.
