4% inflation target to stay

THE CENTRE HAS decided to keep the inflation target unchanged at 4%, with a tolerance band of two percentage points on either side, for the Monetary Policy Committee of the Reserve Bank of India (RBI) for the next five years.

- PRASANTA SAHU

A senior official confirmed the decision, noting that a formal notification is expected later this month.

Key aspects of the policy framework include continuing the inflation target of 4% for the next five-year cycle ending March 2031, with the permissible range maintained between 2% and 6%. Evaluations of the system have shown that the target band effectively anchored inflation expectations between 2016 and 2026. Even during periods of disruption, including the pandemic and subsequent inflation volatility, the government chose to maintain the framework to preserve macroeconomic stability and policy credibility.

IN MARCH 2021, the government reaffirmed the flexible inflation targeting (FIT) framework for the FY22-FY26 period, continuing with the Consumer Price Index (CPI) as the benchmark for inflation.

Introduced in 2016, the framework is designed to strike a balance between maintaining price stability and supporting economic expansion.

Over time, this target has become an important anchor for India's macroeconomic policy environment. Since adopting the inflation-targeting regime, monetary policy has gained greater credibility, supported by improved inflation outcomes.