Quick Summary
Today, theReport on Currency and Finance (RCF) for the year 2020-21was released by the RBI. First published in 1937, the RCF adopted a theme-based approach from 1998-99. After a hiatus between 2014 and 2019, the Report has been revived with this release. The theme of the Report is Reviewing the Mone
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FAQ :
The Report on Currency and Finance (RCF) is an annual publication by the RBI, first released in 1937, which adopts a theme-based approach since 1998-99. This year's report is the first since 2014.
The theme of the 2020-21 Report on Currency and Finance is "Reviewing the Monetary Policy Framework".
The report studies the period from October 2016 to March 2020, covering the operationalisation of India's flexible inflation targeting (FIT) framework, but excludes the COVID-19 pandemic period due to data distortions.
The report concludes that the current inflation target of 4% with a +/-2% tolerance band is appropriate for India for the next five years. It also suggests that 6% is the appropriate upper tolerance limit and 2% is the appropriate lower tolerance bound.
Monetary transmission has been full and reasonably swift in the money market, but less complete in bond markets. While transmission to bank lending and deposit rates has improved, the use of external benchmarks could enhance it further.
While the institutional architecture of FIT in India is generally in line with international best practices, the report suggests a review of aspects like the time horizon for policy failures, onboarding processes for MPC members, forward guidance, and the timing of releasing minutes and transcripts.
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