Inflation Targeting Agreement Between Government and RBI

In February 2016, an “Inflation Targeting Agreement” was signed between RBI and Government regarding the monetary policy. Under this agreement, the RBI is expected to bring down inflation to six percent by April 2016 and keep it 4% from 2016-17 with a band of +/- 2%.

As per this agreement, RBI would be seen as to have failed the inflation target if inflation is more than 6% for three straight quarters from 2015-16 onwards or less than 2% for three straight quarters from 2016-17. If such thing happens, the RBI will need to submit a report to the government on reasons of failing the targets.

Trends in Inflation

Inflation shows a declining trend during the year 2014-15 (April-December) and is down by 6 percent since 2013. With the inflation target achieved only in January 2016, RBI has been easing the monetary policy rates.