Centre will set inflation targets for RBI

• Finance Minister Arun Jaitley has given the go-ahead for a major overhaul of the current monetary policy framework wherein the Centre will specify ‘inflation targets’ for the Reserve Bank of India (RBI) to achieve. Under the proposed new regime, the RBI will set inflation as its top priority in its policy statements.
• The decision departs from the recommendation of an expert committee of the RBI, appointed to examine monetary policy. Headed by Reserve Bank Deputy Governor Urjit R. Patel, the committee had recommended that the monetary policy decision-making should be vested with a monetary policy committee, chaired by the RBI Governor.
• Other recommendations were that the apex bank adopts the new Consumer Price Index (CPI) as the measure of the nominal anchor for monetary policy. And that the RBI set the target CPI inflation level at 4 per cent (+/- 2 per cent) to be achieved through its monetary policy tools.
• A senior Ministry official told that the Modi government decided that the RBI “cannot set for itself an inflation target level of 4 per cent for all times to come…the Centre will set this target.” “It is best that inflation targets are set by the governments elected by the people and not a bunch of bureaucrats and economists sitting in the Reserve Bank.”
• RBI Governor Raghuram Rajan said last that many earlier reports including one by himself talked about the importance of central bank accountability and independence.