Lower inflation target, narrower band possible in future reviews: RBI deputy governor
May 05, 2026
Reserve Bank of India may consider lowering the inflation target and narrowing the tolerance band in future reviews if stable growth and low inflation trends persist, deputy governor Poonam Gupta said.
The remarks come in the backdrop of the government’s decision to renew India’s inflation targeting framework through March 2031, retaining the 4% headline CPI target with a tolerance band of ±2%. The move reflects a preference for continuity amid heightened global uncertainty driven by geopolitical tensions, supply disruptions and volatile energy prices.
“If the growth-inflation mix evolves as it has in the past ten years—robust growth, and lower and more stable inflation—one could perhaps consider tweaking the inflation level and the tolerance band a bit (keeping international experiences in view, it would point towards a slightly lower inflation and a slightly narrower band),” Gupta said at an NCAER seminar here.
“But if the global environment remains as challenging as it has been during the past six years, it would warrant both the predictability and flexibility inherent in the existing framework.” However, she cautioned that such a shift would depend critically on external conditions.
Looking at India’s inflation targeting framework
The inflation targeting framework, institutionalised through amendments to the Reserve Bank of India Act in 1934 (amended in 2016), mandates the Reserve Bank of India to maintain price stability while supporting growth. Over the past decade, it has helped significantly bring down average inflation while also reducing volatility, without undermining economic expansion.
Gupta emphasised that retaining the current framework should not be seen as resistance to change, but rather as recognition of its resilience across multiple global shocks.
Pointing to areas for refinement, she said the RBI could deepen its engagement with core inflation measures to improve policy signalling, especially as structural changes — including better agricultural resilience and improved supply management — narrow the divergence between headline and core inflation.
Further, enhancing communication remains a priority. “More, better and timely communication has been a work in progress and will continue to remain so,” she said.
Gupta underscored that the existing framework retains the flexibility and credibility needed to steer the economy, with calibrated refinements and structural changes helping sustain its relevance in the years ahead.
“If the growth-inflation mix evolves as it has in the past ten years—robust growth, and lower and more stable inflation—one could perhaps consider tweaking the inflation level and the tolerance band a bit (keeping international experiences in view, it would point towards a slightly lower inflation and a slightly narrower band),” Gupta said at an NCAER seminar here.
“But if the global environment remains as challenging as it has been during the past six years, it would warrant both the predictability and flexibility inherent in the existing framework.” However, she cautioned that such a shift would depend critically on external conditions.
Looking at India’s inflation targeting framework
The inflation targeting framework, institutionalised through amendments to the Reserve Bank of India Act in 1934 (amended in 2016), mandates the Reserve Bank of India to maintain price stability while supporting growth. Over the past decade, it has helped significantly bring down average inflation while also reducing volatility, without undermining economic expansion.
Gupta emphasised that retaining the current framework should not be seen as resistance to change, but rather as recognition of its resilience across multiple global shocks.
Pointing to areas for refinement, she said the RBI could deepen its engagement with core inflation measures to improve policy signalling, especially as structural changes — including better agricultural resilience and improved supply management — narrow the divergence between headline and core inflation.
Further, enhancing communication remains a priority. “More, better and timely communication has been a work in progress and will continue to remain so,” she said.
Gupta underscored that the existing framework retains the flexibility and credibility needed to steer the economy, with calibrated refinements and structural changes helping sustain its relevance in the years ahead.