Budget 2021 | Government mulls to raise inflation target to 5%

The government is mulling to raise the inflation target to 5 percent from the current 4 percent, which may give the Reserve Bank of India (RBI) more room to cut policy rates. The government might hike the inflation target to 5 percent, which is a part of the monetary policy framework, with a tolerance level of plus and minus 2 percent from 1 April, Mint reported.

The decision might be announced during the upcoming Budget for FY22, along with other fiscal measures, the report said.

"We expect a consensus to emerge soon as the government intends to get it passed in the current Budget session," a source told the publication.

In 2016, the government notified the existing inflation target for the duration of August 5, 2016 to March 31, 2021. The inflation target of 4 percent has a lower tolerance limit of 2 percent and upper tolerance limit of 6 percent. An RBI working paper authored by Harendra Kumar Behera and Michael Debabrata Patra said the inflation target should be maintained at 4 percent.