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Informist, Friday, Oct. 3, 2025

 

--Source:RBI already sent recommendations to govt on inflation aim framework 

--CONTEXT: RBI, govt to review inflation targetting framework by March 2026 
 

NEW DELHI – The Reserve Bank of India has already shared its recommendations on the flexible inflation targeting framework to the finance ministry, an official of the central bank said Friday. The government, in consultation with the RBI, determines the CPI inflation target once in five years. The flexible inflation targeting framework is up for review in 2025-26 (Apr-Mar).

 

Under the monetary policy framework, the government has set a 4% CPI inflation target from Apr. 1, 2021, to Mar. 31, 2026, within a tolerance band of 2% to 6%. The existing framework is set to lapse on Mar. 31.

 

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 had sought comments from stakeholders by Sept. 18.

 

On Wednesday, RBI Governor Sanjay Malhotra said that the central bank has received feedback from various stakeholders on the framework. 

 

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 in March 2026.

 

Since the flexible inflation targeting framework was implemented, headline CPI inflation has remained within the lower band of 2-4% for 11 quarters out of 35 and stayed within the upper tolerance band of 4-6% for 14 quarters. During 2020-2022, inflation was above 6% in nine out of 36 quarters.

 

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. 

 

Last year, the government said that policy should be guided by core inflation, as food inflation is predominantly supply-driven and not directly under the purview of monetary policy. Former governor Shaktikanta Das, however, had said that removing food from the target benchmark of policy would amount to "not having a target". "It will make no sense to the average citizen, as it is the headline inflation that the common person understands and should remain that way," Das had said in 2024.   End

 

Reported by Krity Ambey

Written by Priyasmita Dutta

Edited by Saji George Titus

 

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