The Fit Framework

The monetary policy framework has worked well

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The Reserve Bank of India (RBI) has released a discussion paper on the monetary-policy framework. As the second review of the flexible inflation-targeting regime approaches in March 2026, the central bank has opened the floor for discussion.

The paper makes clear that the current framework, anchored to a 4 per cent target with a 2 percentage point tolerance band on both sides, has served the Indian economy well since its adoption in 2016. The trend-inflation rate has hovered close to the target, except mostly in times of excess volatility, and the credibility of the central bank has visibly strengthened. Household inflation expectations, which spiked during the pandemic, have since moderated. Yet, since the target is to be reviewed by the central government in consultation with the RBI every five years, it has done well to open the floor for a broader discussion.