Consider the following Statements regarding Inflation targeting It is a central banking policy that ...........

Economic Affairs Inflation

Consider the following Statements regarding Inflation targeting

It is a central banking policy that revolves around adjusting monetary policy to achieve a specified annual rate of inflation.
The principle of inflation targeting is based on the belief that short-term economic growth is best achieved by maintaining price stability, and price stability is achieved by controlling inflation.
The inflation is set by the Reserve Bank once every five years.

Select the incorrect statement.

1&2 only

2&3 only

1&3 only

All of the above

Both statements 2&3 are incorrect.
What is inflation targeting?

Statement 1 is correct: It is a central banking policy that revolves around adjusting monetary policy to achieve a specified annual rate of inflation.
Statement 2 is incorrect: The principle of inflation targeting is based on the belief that long-term economic growth is best achieved by maintaining price stability, and price stability is achieved by controlling inflation.

Inflation Targeting Framework

Now there is a flexible inflation targeting framework in India (after the 2016 amendment to the Reserve Bank of India (RBI) Act, 1934).

Who sets the inflation target in India?

Statement 3 is incorrect: The amended RBI Act provides for the inflation target to be set by the Government of India, in consultation with the Reserve Bank, once every five years.

Current Inflation Target

The Central Government has notified 4 per cent Consumer Price Index (CPI) inflation as the target for the period from August 5, 2016, to March 31, 2021, with the upper tolerance limit of 6 per cent and the lower tolerance limit of 2 per cent.

Hence option 2nd is correct.