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On 31 March 2021, the government put to rest doubts over India’s continuity with its macroeconomic goal of price stability. The government retained the target for inflation for the Monetary Policy Committee (MPC) of the Reserve Bank of India at 4% for the period 2021-2026, with a tolerance band of +/- 2 percentage points.
Inflation goal as ‘first among equals’:
Even as some economists and commentators have questioned India’s paranoia with inflation, the moot question is, should inflation targeting be accorded prime status in the hierarchy in India with other macro goals of growth and financial stability?
A perusal of history suggests that India’s inflation targeting compares very favourably with that of New Zealand, the pioneer in its adoption in 1989. New Zealand specifically defined price stability as an inflation rate in the 0-2% range, to be achieved by 1992 as a macro goal. It was only in 2019 that New Zealand extended the monetary policy goals to achieving the twin objectives of price stability and support of maximum sustainable employment, with the onus of this dual mandate lying with an MPC instead of a governor.