With an aim to strengthen the current monetary policy framework, the Reserve Bank of India (RBI) Expert Panel, headed by RBI Deputy Governor Urjit R Patel, has recommended the central bank to adopt the new Consumer Price Index (CPI) for anchoring the monetary policy. At present, the RBI determines its monetary policy stance on the basis of Wholesale Price Index (WPI) as it is the only measure of prices at a national level, as the CPI has traditionally addressed prices facing specific sections of the society.
The committee has emphasized that bringing down CPI inflation must be accorded primacy and set the inflation target at 4 percent with a band of plus or minus 2 percent around it. The RBI Panel suggested that the central bank should take measures to bring down the CPI inflation from the current level of 10 percent to 8 percent over a period of next 12 months and to 6 percent in the next 24 months, before formally adopting the recommended target of 4 percent inflation with a band of +/- 2 percent. The monetary policy decision making should be vested in a monetary policy committee (MPC) that should be headed by the Governor, it added. Further, the panel added that MPC will be accountable for failure to establish and achieve the set CPI inflation target, which will require the MPC to issue a public statement, signed by each member, stating the reason for failure, remedial actions proposed and the likely period of time over which inflation will return to the centre of the inflation target zone. Meanwhile, CPI inflation eased to a three-month low level of 9.87% for December 2013 on y-o-y basis as compared to record high level of 11.16% for the previous month of November 2013.
Referring to the price stability in the country, the panel has highlighted that the government should make efforts for achieving price stability as it affects the monetary policy transmission. The RBI panel also recommended some new instruments to be added to the tool kit of monetary policy adding that all fixed income financial products should be treated on par with bank deposits for the purposes of taxation and TDS. In order to make monetary policy framework more transparent and predictable, RBI Governor Raghuram Rajan had set up the panel in September. The main aim of the panel was to recommend what needs to be done to revise and strengthen the RBI monetary policy framework.
The committee has emphasized that bringing down CPI inflation must be accorded primacy and set the inflation target at 4 percent with a band of plus or minus 2 percent around it. The RBI Panel suggested that the central bank should take measures to bring down the CPI inflation from the current level of 10 percent to 8 percent over a period of next 12 months and to 6 percent in the next 24 months, before formally adopting the recommended target of 4 percent inflation with a band of +/- 2 percent. The monetary policy decision making should be vested in a monetary policy committee (MPC) that should be headed by the Governor, it added. Further, the panel added that MPC will be accountable for failure to establish and achieve the set CPI inflation target, which will require the MPC to issue a public statement, signed by each member, stating the reason for failure, remedial actions proposed and the likely period of time over which inflation will return to the centre of the inflation target zone. Meanwhile, CPI inflation eased to a three-month low level of 9.87% for December 2013 on y-o-y basis as compared to record high level of 11.16% for the previous month of November 2013.
Referring to the price stability in the country, the panel has highlighted that the government should make efforts for achieving price stability as it affects the monetary policy transmission. The RBI panel also recommended some new instruments to be added to the tool kit of monetary policy adding that all fixed income financial products should be treated on par with bank deposits for the purposes of taxation and TDS. In order to make monetary policy framework more transparent and predictable, RBI Governor Raghuram Rajan had set up the panel in September. The main aim of the panel was to recommend what needs to be done to revise and strengthen the RBI monetary policy framework.
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