According to the recent RBI study, why will inflation target below 6% might hurt growth?

According to a RBI study done under Ravindra Dholakia, a former member of the monetary policy committee, India’s economic growth will be at a risk and will need regular policy interventions if the inflation target is below 6% which is the threshold inflation level. The country will not be able to reach its potential growth if the country constantly targets inflation levels below 6% and it will require a lot of policy interventions.

Q1. What is meant by threshold inflation level?

The level beyond which high price affects the growth in a negative way. The threshold inflation level is 6% and the current inflation target is 4% with a 2% fluctuation in both ways.

Q2. What do you mean by Inflation?

Inflation can be defined as sustained increase in general level of prices for goods and services. It is the situation of the economy where the prices of goods and service increase and at the same time the value of money decreases. Too much inflation causes economical instability and the price rise hurts the general public.

Q3. What are the stages of inflation?

  • Creeping Inflation: When inflation rate is between 0 to 3% per annum.
  • Trotting or Walking Inflation: When inflation range is between 3 to 10%.
  • Running Inflation: When inflation range is between 10 to 20%.
  • Galloping Inflation: When the inflation range is between 20 to 1000%.
  • Hyper Inflation: Inflation rises so fast that it becomes difficult to measure, but generally it is measured by inflation range going past 1000% and above.

Q4. What is the monetary policy committee?

The 6 member committee of RBI, that decides upon and fixes the various interest rates in India such as the Repo Rate, Reverse Repo Rates, etc. The monetary policy committee meets for four times in a year.  The current chairperson of the committee is the RBI governor Shri Shaktikanta Das.

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