MUMBAI: The Reserve Bank has come out with a discussion paper on the forthcoming review of its flexible inflation targeting (FIT) framework, scheduled for next March, seeking to examine the past nine years of inflation targeting experience, considering global experiences and emerging economic risks.
The central bank has invited comments from the public and all other stakeholders by September 18, 2025 for the review, which is mandated by law.
The flexible inflation targeting framework currently mandates the RBI-led Monetary Policy Committee to keep consumer prices-based inflation under check at 4% with a 2% margin either way.
The framework was given statutory backing in May 2016 through amendments to the RBI Act, 1934. Under this, if the RBI misses the target for three consecutive quarters, the governor who chairs the MPC has to write to the government explaining the reasons for the misses and, if deemed necessary, will also have to appear before the relevant Parliamentary panel.
It missed the target only once during the pandemic, and the then governor Shaktikanta Das had to write to the government but did not appear before the Parliamentary panel.
According to the amended Section 45ZA, the government, in consultation with the RBI, is required to set a retail inflation target every five years. The target, first notified in August 2016 for 2016–21, was retained in March 2021 till March 2026.
The discussion paper reviews the country’s experience with the inflation-targeting journey over the past nine years, including the pandemic and post-pandemic phases, while drawing lessons from global experiences.
The monetary authority has sought stakeholder views on four key issues: whether headline or core inflation should guide monetary policy; whether the 4% inflation target remains appropriate; whether the tolerance band should be changed, narrowed, widened or removed; and whether the target should be replaced with a range to preserve flexibility without losing credibility.
Highlighting emerging risks such as geo-economic uncertainties, volatile commodity prices, climate change and shifts in payment systems, the central bank has said the review offers an opportunity to revisit the framework for better macroeconomic outcomes.
"This review gives us an opportunity to revisit some of the basic tenets of the framework to nudge the economy towards further improved macroeconomic outcomes," the paper issued Thursday stated.