Govt to set inflation target, RBI to achieve, says FMhttps://indianexpress.com/article/business/business-others/govt-to-set-inflation-target-rbi-to-achieve-says-fm/

Govt to set inflation target, RBI to achieve, says FM

Rajan clarified that growth is as important as inflation and there in no trade-off between the two.

Finance minister P Chidambaram today said that the government has the right to set the target for inflation while the Reserve Bank of India’s task is to achieve it. The minister also stressed on the point that both the goals of price stability and growth are important for the economic stability of the country. 

The statement comes amid an expert panel under RBI deputy governor Urijit Patel recommending that inflation, rather than a mix of growth and inflation, should be the central bank’s main focus. The aim of the RBI should be to target retail inflation and bring it down to 4 per cent (+/- 2 per cent) in the medium term, the panel said. It also suggested that the central bank should set a retail inflation target of 8 per cent by January 2015 and 6 per cent by January 2016. Inflation, as measured by the consumer price index (CPI), was 8.79 per cent in January.

Addressing a press conference after the central board meeting of the RBI, Chidambaram and RBI governor Raghuram Rajan made it clear that there is broad convergence on the issue of setting of inflation target by the government and achieving it is the responsibility of the regulator.

“The sovereign has the right to set the (inflation) target, and then the central bank has the mandate to take steps to achieve that target … We must achieve both goals of price stability and growth … I am sure working together the government and central bank will be able to achieve these goals … I sincerely hope that in the years ahead we will be able to take this forward,” Chidambaram said.

Rajan clarified that growth is as important as inflation and there in no trade-off between the two.