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The Union Government has set an inflation target of 4% for the next five years

The Union Government has set an inflation target of four percent for the next five years. 
•    In this regard, Union Government will soon set-up Monetary Policy Committee (MPC) to adhere to the target till March 31, 2021. 
•    This target was fixed after the Union Government and Reserve Bank of India (RBI) had reached an agreement on a monetary policy framework. 
•    The framework had set the inflation target at four percent, plus or minus two percent. 
•    However, there was no legal backing to it. 
•    The Union Government in June 2016 also had notified rules for setting up the MPC giving effect to amendments in the RBI Act. 
•    The key advantage of a target is that it allows to recognise the short run trade-offs between inflation and growth. 
•    It also enables Central Bank to pursue the inflation target in the long run over the course of a business cycle.
 

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