MUMBAI: As widely expected, the government has retained the decade-old flexible inflation targeting framework leaving the targeted price index at 4% with a 2% margin either way. The decision was taken after the second review of the framework held in the national capital on Wednesday.
“In exercise of the powers conferred by section 45ZA of the Reserve Bank of India Act, 1934, the government, in consultation with the Bank, hereby notifies the inflation target for the period beginning from the 1st day of April, 2026 and ending on the 31st March, 2031, with a inflation target of 4%; upper tolerance level at 6% and lower tolerance level at 2%,” Aparna Sinha, an economic adviser to the finance ministry, said in a gazette notification on Wednesday.
Last August the RBI had come out with a discussion paper on the forthcoming review of its flexible inflation targeting (FIT) framework seeking to examine the past nine years of inflation targeting experience, considering global experiences and emerging economic risks.
The flexible inflation targeting framework mandates the RBI-led monetary policy committee to keep consumer prices based inflation under check at 4% with a 2% margin either way. By the MPC law, the government and RBI have to review the FIT framework every five years. The first review was held in March 2021.
Since the institution of the MPC under governor Urjit Patel as the first chairman in June 2016, establishing the flexible inflation-targeting framework, the rate-setting panel met 59 times, with the first meeting from October 3-5, 2016, and the 59th one from February 4-6, 2026. Of these 59 meetings, only 12 delivered repo rate cuts while 16 saw repo hikes and the remaining 31 saw no action.
The law demands that if the RBI-MPC misses the set target for three consecutive quarters, the governor personally appears before Parliament and explains the reasons for missing the target. Such a development happened only once in the past ten years of the MPC during the pandemic.