CA Foundation · Business Economics · Indian Economy
Under India's monetary policy framework, the Reserve Bank of India is mandated to maintain inflation at a target of 4% with a tolerance band of:
The RBI's flexible inflation targeting framework fixes a medium-term CPI inflation target of 4% with a tolerance band of plus or minus 2 percentage points, giving a range of 2% to 6%. The band is not 1 or 3 points wide.
- A+/- 1 percentage point
- B+/- 2 percentage pointsCorrect
- C+/- 3 percentage points
- D+/- 4 percentage points
Explanation
The flexible inflation targeting framework sets the CPI inflation target at 4% with a band of 2% to 6%, i.e. +/- 2 percentage points. A band of +/-1 would give 3% to 5%, which is not the notified range.
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