RBI Signals Continuity in Inflation Targeting Framework Amid Review

The Reserve Bank of India (RBI) said on Thursday that the current inflation-targeting framework has served the economy well and may continue in its present form, even as it sought stakeholder feedback ahead of a scheduled review in April 2026. The central bank has invited views on whether the current 4% target with a tolerance band of ±2 percentage points remains appropriate, and whether headline inflation or core inflation should serve as the benchmark.

The RBI’s discussion paper noted that most countries, regardless of their stage of development, target headline inflation, arguing that excluding food prices would overlook the cost of living pressures faced by the poor. The paper stressed that India’s experience since adopting the framework in 2016 has shown success in disinflation while allowing flexibility in tackling external shocks, with trend inflation broadly aligned to the 4% mark.

The central bank warned that raising the inflation target could be seen by investors as weakening its commitment, while lowering it may lack credibility amid volatile global food prices. Removing the target altogether could risk perceptions of policy indifference. The final decision will rest with the government, in consultation with the RBI, with the bank emphasizing that monetary policy requires certainty and credibility, particularly in the current uncertain global environment.

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