India should continue with its flexible inflation targeting framework

Continuing with the FIT framework will ensure policy certainty in these uncertain times

The Reserve Bank of India (RBI) has done well to release a discussion paper on the review of the monetary policy framework, seeking feedback on four key questions. The RBI Act was amended in 2016 to provide the legal foundation for adopting the flexible inflation targeting (FIT) framework. The Act gave the RBI a clear mandate to “maintain price stability, while keeping in mind the objective of growth.” Accordingly, it is expected to keep the inflation rate based on the consumer price index (CPI) at 4 per cent, with a tolerance band of two percentage points on both sides. The