The decision to preserve the inflation targeting framework’s core architecture is a policy choice of consequence in the backdrop of geopolitical tensions, supply chain disruptions, energy price volatility, and an uneven global growth outlook making the macroeconomic environment more complex and less predictable, according to RBI Deputy Governor Poonam Gupta.
The Government of India had issued a Gazette notification on March 25, 2026, renewing the existing inflation target of 4 per cent with ±2 per cent tolerance band for five more years, extending the current inflation target (IT) mandate through March 2031.
“Renewal of India’s inflation targeting framework through March 2031, has come at a moment of considerable global uncertainty....The review strengthens the framework precisely when it is most needed,” Gupta said in her speech delivered on Tuesday at NCAER, New Delhi.
She emphasised that the decision to continue with the existing framework is not to be construed as inertia towards change; the framework’s durability over the past decade reflects a willingness to learn from experiences.
“This begs the question of what might a future review look like?...If 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 level of inflation and the tolerance band a bit (keeping in view the international experiences, it would point towards a slightly lower inflation and a slightly narrower band).
“But if the global environment remains as challenging as it has been during the past six years, it would warrant both predictability and flexibility inherent in the existing framework,” Gupta said.
On an ongoing basis, the RBI too, on its part, can consider some further refinements, particularly with regard to more engagement on its core inflation measures, she added.
“More, better, and timely communication has been a work in progress and will continue to remain so...The existing monetary policy framework has all the inherent features that can be duly leveraged to nudge the economy towards further improved macroeconomic outcomes,” she said.
“Calibrated refinements, backed by structural changes, if any, can continue to retain the relevance and appropriateness of the framework in the years ahead,” the Deputy Governor said.
Gupta underscored that price stability and growth have proved complementary rather than conflicting objectives under the Indian IT framework.
“Looking ahead, the structural distinction between the dynamics of headline and core inflation may be becoming less stark,” she added.
“Some evidence shows that Indian agriculture has become more resilient to rainfall shocks; and food prices volatility has moderated especially due to better management and narrowing of demand-supply gaps by the government,” she said.
Besides, with the recent revision of the CPI (consumer price index) basket by MoSPI (Ministry of Statistics and Programme Implementation), weight of food in overall CPI has declined, which means headline and core inflation are likely to track each other more closely going forward.
Thus, the suggestions received (during review of the IT framework), the experience of the past ten years, and the international evidence all seem to favour retaining headline inflation as the target.
Published on May 5, 2026