Inflationary Target Monitory Policy

The government has decided to constitute a monetary policy committee with an aim to target the inflation making the RBI responsible to keep inflation in the band of 4%+-2%. The pros and cons of Inflation targeting Monetary policy is as follows

Pros:
- Stable inflationary rates will lead to price stability
- Inflationary Shocks are reduced
- Pro poor policy implementation
- Easily Measurable and Quantifiable

Cons:
- May Reduce investment in the country
- Inflation may be due to Supply shock reasons or may be seasonal. Hence may not give the correct picture

In a developing country like India it is very important to control inflation as an uncontrolled price rise may lead to widespread hunger and social discomfort. Having said that, it is also necessary to keep the policy rates to be in brackets which will promote investment and job opportunities in the country. Hence a balanced approach is necessary and the government's decision to constitute a monetary policy committee is a welcoming step in such regards