The finance ministry on Tuesday pinned hopes on the Reserve Bank of India (RBI)’s plans to adopt a dovish approach on interest rates in the coming months, even as the central bank refrained from cutting the policy rate in its bi-monthly monetary policy review. The ministry also exuded hope the proposed monetary policy framework would help its plans to support investment and growth.
“The government looks forward to RBI supporting the revival of growth and employment,” the finance ministry said in a statement here.
Though RBI pointed out headline inflation had been receding steadily and current readings were below the January 2015 target of eight per cent, as well as the January 2016 target of six per cent, the central bank, listed out a slew of upside risks going forward.
The statement said the government and RBI would work in the weeks ahead towards a monetary policy framework that would help institutionalise the gains achieved on the inflation front, to reduce inflationary expectations and further support the revival of investment and growth.
The finance ministry and RBI are currently in talks to set up the framework by this month-end or next month. In the new mechanism, the target for inflation is likely to be set by the government, though it is likely to consult RBI and Parliament in this regard.
However, RBI is likely to retain autonomy over monetary tools it would like to adopt to achieve those targets.
The central bank pointed out the investment cycle was still weak in the economy but maintained the status quo on the policy rate.