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Informist, Friday, May 1, 2026

NEW DELHI – Regional heterogeneity in inflation may warrant a closer assessment when the government and the Reserve Bank of India will next review the inflation targeting framework in 2030-31 (Apr-Mar), Deputy Governor Poonam Gupta said Friday. "Do differential consumption or inflation patterns across states warrant a more nuanced approach?" Gupta listed as a possible question that may be asked at the time of the next review. 

Another key area for discussion during the next review would be greater transparency in core inflation data, work on which has already begun, she said. Following the Monetary Policy Meeting in April, RBI Governor Sanjay Malhotra had said that the central bank will give projections for core inflation hereon. Other areas of discussion may be a lower inflation target band, updating the consumption basket more frequently, may be every three to five years, weightage of food, precious metal prices, among others.

The government, in consultation with the RBI, determines the CPI inflation target once in five years. The flexible inflation targeting framework was reviewed in FY26, wherein the target was retained at 4%, with a tolerance band of 2% on either side. 

The RBI released a discussion paper on Aug. 21, seeking views on four questions, including whether the 4% inflation target was optimal for balancing growth with stability in India. The RBI had also sought views on whether the target inflation level should be completely removed and only a target range be maintained. 

The RBI has also sought feedback on whether the tolerance band around the target should be revised from the current 2-6% or even done away with. The RBI said that the current tolerance band allows flexibility to account for shocks in the prices of food, energy, and other volatile components, as well as any forecast and measurement errors. The last question on which the RBI had sought views was whether headline inflation or core inflation would best guide monetary policy. 

Divulging details on the feedback received on the discussion paper, Gupta said that 63% of respondents said that headline inflation must be targeted rather than core. Another 31% said that headline inflation must be targeted with core as the operational guide, and 6% said that headline inflation must be the target with core as the explicit additional target. 

The monetary policy framework was introduced in May 2016 with the implementation of the flexible inflation targeting framework. In the first review conducted in March 2021, the target and range were retained for a period of five years, ending March 2026. 

The central bank has projected headline inflation to average 4.6% in FY27, and after more than a year of risks to inflation being "evenly balanced", said that risks to inflation forecasts are on the upside. As per the latest data, CPI inflation rose to a one-year high of 3.4% in March, driven by higher food and utilities inflation, although higher energy prices and choked supplies had a limited impact during the month.

Gupta said that the flexible inflation targeting framework gives for flexibility in the wake of heightened uncertainties and supply-side disruptions and helps stabilise growth over business cycle. It also limits the need for frequent changes in policy rate, thereby reducing the risk of policy-induced volatility.  End

Reported by Priyasmita Dutta and Sagar Sen

Edited by Akul Nishant Akhoury

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