economics medium MCQ

Under the current monetary policy framework in India, the RBI is mandated to maintain retail inflation (CPI) within a specific tolerance band. What are the target rate and the upper/lower tolerance limits?

  1. Target 2%, Limits 0% to 4%
  2. Target 4%, Limits 2% to 6%
  3. Target 5%, Limits 3% to 7%
  4. Target 6%, Limits 4% to 8%

Answer: Target 4%, Limits 2% to 6%

Following the recommendations of the Urjit Patel Committee, the Government of India and the RBI formalized a flexible inflation-targeting framework in 2016. The RBI's Monetary Policy Committee (MPC) is legally bound to use its interest rate tools to keep CPI inflation anchored at 4%, with a permissible deviation band of +/- 2%. If inflation breaches the 2% or 6% limits for three consecutive quarters, the RBI must submit a remedial report to the government.

Topic Macroeconomics - Inflation
Exam Relevance Banking, UPSC Prelims, SSC
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