India Retains 4% Inflation Target for RBI:
The Government of India has retained the 4% retail inflation target (with +/- 2% band) for the next 5-year period (1st April, 2026, to 31st March, 2031), reinforcing the flexible inflation targeting (FIT) framework adopted in 2016. This marks the 2nd such extension since March 2021, ensuring long-term macroeconomic stability.Flexible Inflation Targeting (FIT) is a monetary policy framework where the central bank uses its tools—primarily interest rates—to keep the inflation rate within a specific, publicly announced target range while also considering other economic factors like growth and employment.
Unlike “strict” inflation targeting, which focuses solely on price stability, the “flexible” aspect allows the central bank to tolerate short-term deviations from the target to avoid causing excessive volatility in the real economy (like a sudden spike in unemployment or a crash in GDP).Section 45-ZA of the amended RBI Act, 1934 mandates that the primary objective of monetary policy is to maintain price stability while keeping in mind the objective of growth.While New Zealand was the first to adopt inflation targeting globally in 1990, India formally shifted to FIT in 2016 following the recommendations of the Urjit Patel Committee.
