Hindustan Times (East UP)

Govt may ease inflation band

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NEW DELHI: India’s government is considerin­g recommendi­ng a looser inflation target for the central bank, allowing it to focus more on economic growth despite price pressures, according to people familiar with the matter.

A consumer-price inflation band tracked by the Reserve Bank of India may be relaxed further from the current 2-6% range, said the people, who asked not to be identified citing rules. The government still needs to hold consultati­ons with the central bank before finalising a new framework sometime next year.

The current mandate, set in 2016, requires the RBI to keep headline inflation at the 4% midpoint of its target range. The band—a broad range of 400 basis points within which the central bank has sanction to operate—is the widest in Asia, and only matched by Turkey and surpassed by Argentina.

Sovereign bonds advanced for the first time in three days on Wednesday. The yield on the most-traded 5.77% 2030 bond fell 2 basis points to 5.92% in Mumbai.

The finance ministry is of the view that the RBI can’t be saddled with a rigid inflation targeting framework, especially in situations when growth needs to be pushed, the people said.

A spokespers­on for the finance ministry declined to comment, while the RBI didn’t immediatel­y respond to an email seeking comment.

Economists like Bloomberg Economics’ Abhishek Gupta have argued in the past that the headline inflation measure used now is too volatile and the Reserve Bank of India should rather target core prices, which strips out oil and food costs. Food carries nearly 50% weight in the CPI basket.

RBI governor Shaktikant­a Das said Friday that a final call on what measure to target rests with the government and the Parliament, although he doesn’t see a situation where they will move away from tracking the CPI.

The central bank has previously faced criticism for largely overstatin­g inflation, forecasts that were then used to underpin the MPC’s hawkish policy stance in 2018.

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