What is the target inflation rate set by the Reserve Bank of India for the financial year 2022-23?

Key Points

• The Reserve Bank of India (RBI) has set the medium-term target for inflation at 4% with a tolerance band of +/- 2%.
• This target is aligned with the framework outlined under the Monetary Policy Framework Agreement signed between the Government of India and the RBI in 2016.
• The inflation targeting mechanism is aimed at ensuring price stability while fostering economic growth.
• The Consumer Price Index (CPI) is the key indicator used by the RBI to measure and manage inflation in India.

Additional Information

• Inflation:
  • Inflation refers to the rate at which the general level of prices for goods and services rises, leading to a decline in purchasing power over time.
  • Controlled inflation is crucial for economic growth, but excessive inflation can harm the economy by eroding savings and increasing the cost of living.
• Monetary Policy Framework Agreement:
  • This agreement was signed between the Government of India and the RBI in 2016 to institutionalize inflation targeting in India.
  • Under this framework, the RBI is tasked with maintaining the inflation target of 4% with a tolerance band of +/- 2%.
• Consumer Price Index (CPI):
  • The CPI measures changes in the price level of a basket of consumer goods and services purchased by households.
  • It serves as the primary gauge for inflation in India and is used by the RBI to set monetary policy.