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Government and RBI keep their inflation target of 2% to 6% for 5 years

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Retail inflation accelerated to 5.03% year-on-year, a three-month high, in February.

The government and the central bank have agreed to keep the bank’s inflation target at 2-6% for the next five years, a finance ministry official said.

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The monetary policy framework, signed by Prime Minister Narendra Modi’s government with the Reserve Bank of India in 2015, established a monetary policy committee with a mandate to achieve headline inflation of 2-6% .

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The target will be maintained until March 2026, Tarun Bajaj, secretary of economic affairs at the finance ministry, said in a virtual briefing.

Retail inflation, which hit double digits under the previous Congress-led government, has generally declined.

However, analysts believe that high commodity prices could fuel inflation in the coming months.

Retail inflation accelerated to 5.03 percent year-over-year, a three-month high, in February on higher fuel prices.

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After cutting the pension rate by 115 basis points to support the economy during the coronavirus crisis, the central bank has kept the policy rate unchanged since May 2020.

India’s economy is expected to contract 8 percent in the current fiscal year ending in March, before growing around 11 percent in the next fiscal year.

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The Reserve Bank of India’s Monetary Policy Committee (MPC) is expected to keep the benchmark repo rate at 4 percent at its next meeting on April 5-7.

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