Government extends Reserve Bank of India (RBI) 4% retail inflation target framework till March 2031

Key facts

• Government extended the mandate for Reserve Bank of India (RBI) to maintain retail inflation at 4% with a tolerance band of 2 percentage points on either side for another five years ending March 31, 2031.
• The flexible inflation-targeting framework was first introduced in 2016 and retained earlier in March 2021.
• The inflation target remains at 4% with an upper tolerance level of 6% and a lower tolerance level of 2%.
• Retail inflation rose to 3.21% in February from 2.74% in the previous month according to latest official data.
• India formally adopted the inflation-targeting regime in 2016 when the six-member Monetary Policy Committee (MPC) headed by the RBI governor was tasked with keeping annual retail inflation aligned to the 4% target until March 31, 2021.
• Average inflation in India has moderated to around 4.9% since adoption of flexible inflation targeting compared with 6.8% in the pre-framework period under the current data series.