The Indian government has retained the inflation target at 4% for the next five-year period from April 1, 2026 to March 31, 2031. In a notification issued by the Ministry of Finance, in consultation with the Reserve Bank of India, the inflation target continues at 4%, with an upper tolerance level of 6% and a lower tolerance level of 2%.The move maintains the existing flexible inflation targeting framework, providing continuity to monetary policy and anchoring inflation expectations amid global uncertainties.
India formally moved to an inflation-targeting regime in 2016, tasking the RBI with maintaining price stability. Under the framework, the RBI Governor-led six-member Monetary Policy Committee (MPC) is responsible for setting policy rates to ensure that retail inflation remains anchored at 4%, with an upper tolerance of 6% and a lower limit of 2%.
In its first meeting in October 2016, the MPC was given the mandate to maintain inflation within this band until March 31, 2021. The government maintained the same target for later years. This is the second time the government has retained the inflation target.Latest data show retail inflation rising to 3.21% in February from 2.74% in the previous month. The Consumer Price Index is now based on a new series with 2024 as the base year.Ahead of the next inflation-target review effective April 1, 2026, the RBI undertook a comprehensive assessment of India’s inflation-targeting framework amid major global and domestic economic shifts.In August 2025, it released a discussion paper seeking stakeholder feedback on key issues, including whether monetary policy should continue to focus on headline inflation or shift to core inflation, whether the 4% target remains optimal, and if the 2–6% tolerance band should be altered or replaced with only a range.The RBI noted that inflation performance under flexible inflation targeting (FIT) over nine years has been largely satisfactory, displaying a hump-shaped pattern.Inflation remained close to target in the first and last three years, while external shocks such as the COVID-19 pandemic and the Russia-Ukraine war pushed inflation towards the upper band in between.Overall, average inflation has declined post-FIT, reinforcing the framework’s credibility and effectiveness.With inputs from agencies
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