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Informist, Tuesday, May 5, 2026

 

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--RBI Gupta:If growth high, CPI low till 2031, see narrow CPI tolerance band    
--RBI Gupta: If growth high, CPI low till 2031, see lower inflation target    
--RBI Gupta:No case for narrowing inflation-targetting tolerance band for now
--RBI Gupta: Fincl sector, macroeconomic stability here to stay    
--RBI Gupta: India's GDP can grow quicker without pushing up inflation    
--RBI Gupta: Shock we are facing is cyclical, see quick normalisation    
--CONTEXT: RBI Deputy Governor Poonam Gupta speaks at NCAER event in Delhi
--IMF Srinivasan: RBI should explain how it is looking through CPI shocks    
--IMF Director: See significant risks if India shifts its inflation target    
--CONTEXT: IMF Asia-Pacific dept Director Srinivasan speaking at NCAER event
 

 

NEW DELHI – There may be a case for reducing India's medium-term inflation target and narrowing the tolerance band when the inflation targeting framework comes up for review in 2030-31 (Apr-Mar), if the economic growth is robust and inflation is low and stable over the next five years, RBI Deputy Governor Poonam Gupta said Tuesday. 

 

"If growth-inflation mix evolves as it has in the past 10 years in the sense that we continue to have robust growth and lower and more stable inflation, perhaps one could consider going the way other economies have gone," she said, speaking at an event organised by the National Council of Applied Economic Research.

 

"Perhaps there would be a case to lower the level and narrow the band, but much would depend on the experience of the next five years which would be taken as input into the next review. But even with all the other outcomes being what they are, there is also merit in continuity," Gupta said.

 

Speaking at the event, International Monetary Fund Director for Asia and the Pacific Krishna Srinivasan said there are significant risks if India shifts its inflation target. "If you are going from 4% to something else, there could be significant costs, and any revision of the inflation target should meet a very high bar since they carry credibility risks and can be perceived as a sign of weakening commitment to price stability, which is very important for emerging market economies like India. By contrast, lowering the target may be risky in case it proves hard in subsequent quarters to meet the target, also carrying credibility risks," he said.

 

The government, in consultation with the RBI, determines the CPI inflation target once every five years. The flexible inflation-targeting framework was retained at 4%, with a tolerance band of 2-6% for the next five years in FY26. Gupta said there is "very little reason to be moving away from this target for now... the Indian experience, for the most part, India's inflation has remained within the band."

 

The central bank has projected headline inflation to average 4.6% in FY27, with risks to forecasts 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 due to the war in West Asia have so far had a limited impact on overall inflation.

 

Gupta said the frequency and intensity of external shocks that every economy has been facing lately, perhaps the band size remains quite valid. "India's own experience and international experiences convey that a plus-minus 2% province band has served the aim, especially providing the flexibility needed to absorb large external shocks which have been impacting us, and they don't seem to be abating," she said.

 

The war in West Asia, which began on Feb. 28, has increased India's exposure to energy and price shocks, given the dependence on the region for crude oil and liquefied petroleum gas supplies. Crude oil prices have soared since the war broke out, rising to a four-year high of $126 per barrel on Thursday from below $73 per barrel before the war, stoking inflation fears.

 

Srinivasan said the RBI may look into communicating how it is looking through temporary shocks while keeping inflation anchored at the 4% target. This will further enhance the resilience and credibility of the monetary policy regime. "We are in very difficult times right now. Uncertainty is very high, so that's why communication becomes that much more important," he said.

 

Partly responding to this, Gupta said the current shocks India is facing are cyclical and likely to normalise soon. She said there is a lot of emphasis on growth with prudence. "Growth should continue to do well and hopefully accelerate, supported by underlying structural strengths and timely appropriate policy responses," the RBI deputy governor said.  End

 

Reported by Sagar Sen and Aaryan Khanna

Edited by Saji George Titus

 

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