RBI still chasing 4 per cent inflation target

In November 2022, the Reserve Bank of India (RBI) found itself outside its mandated price stability zone for the first three quarters of that year. According to the RBI's mandate, it is considered to have failed in its price stability role if inflation remains outside the tolerance range of 2-6 percent for three consecutive quarters. This failure was confirmed by a September 2022 inflation rate of 7.41 percent, marking three quarters of inflation exceeding the upper limit of the RBI's target range.

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Consequently, the RBI's Monetary Policy Committee (MPC) convened to draft a report as per the provisions of Section 45ZN of the RBI Act, 1934, and Regulation 7 of RBI MPC and Monetary Policy Process Regulations, 2016. This "letter" to the central government was to detail the reasons for the failure, the remedial actions proposed by the RBI, and an estimate of the time required to bring inflation back to a sustainable 4 percent.

Of the three aspects mentioned, two were relatively clear the reasons for the failure and the time frame for returning inflation to the target. The RBI had made it clear that two years was an appropriate timeline for inflation to return to the 4 percent target.