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As on : 22-Aug-2025

Economy - Reports
22-Aug-2025 08:51

RBI seeks public feedback on 4% inflation targeting regime

The Reserve Bank sought public feedback on whether its monetary policy should continue to target 4 per cent retail inflation or set new parameters to boost growth while maintaining stability in the fast-growing large economy. While emphasising that the flexible inflation targeting (FIT) regime has been successful, the central bank is also looking at whether core inflation would be the best guide for monetary policy.

Following a Monetary Policy Framework Agreement with the government in 2015, India formally adopted the inflation targeting framework in 2016. The government has mandated the RBI to maintain a Consumer Price Index (CPI) inflation target of 4 per cent with a tolerance band of +/- 2 per cent during 2016-21. However, the incidence of repetitive shocks to food and fuel prices challenged the conduct of monetary policy, particularly during post-pandemic and the Russia-Ukraine conflict with inflation diverging away from target, like in many other economies. The Indian experience is unique as the share of food and energy is more than half of the consumption basket in India, RBI report stated.

The conduct of monetary policy frameworks needs both policy certainty and credibility. This has become particularly important during the current environment of heightened uncertainty. It is, therefore, important that the basic tenets of the framework that have been tested and judged to be favourable are continued. 33 The adaptability and flexibility already inbuilt into the extant framework should be leveraged to nudge the economy towards further improved macroeconomic outcomes, the central bank noted.

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