India’s inflation targeting framework has been officially renewed until March 2031. The Government of India issued a Gazette notification on March 25, 2026, retaining the 4 per cent CPI inflation target with a ±2 per cent tolerance band. RBI Deputy Governor Dr. Poonam Gupta outlined the framework’s evolution, outcomes, and future direction at an NCAER seminar on May 5, 2026.
A Decade of Inflation Targeting: Key Outcomes
India’s inflation targeting framework, formally adopted in 2016, has delivered measurable results. Average headline CPI inflation fell from 8.1 per cent in the pre-IT decade to 4.6 per cent during 2016–26. Additionally, inflation variability narrowed sharply, with the range tightening from 3.3–13.4 per cent to just 0.3–7.8 per cent.
Growth also improved under the framework. Average annual GDP growth edged up from 6.8 per cent to 7.0 per cent, excluding COVID-affected years. Therefore, price stability and growth have proved complementary, not conflicting, under India’s monetary policy approach.
India’s performance stands out globally. In 2025, India’s headline inflation stood at just 2.2 per cent — well below the EMDE average of 5.2 per cent. Meanwhile, no inflation-targeting country has ever abandoned the framework after adoption, highlighting its durability worldwide.
What the Review Found: Four Key Questions Answered
The RBI conducted a public consultation before the renewal. It received 75 responses on four key questions about the inflation targeting framework’s design. The process was notably more open and consultative than the previous 2021 review.
On the target measure, over 90 per cent of respondents favoured retaining headline CPI over core inflation. Internationally, 47 of 48 inflation-targeting countries also use headline CPI. As a result, the headline target was retained without change.
On the 4 per cent target level, respondents strongly supported keeping it. The rate aligns with India’s development stage and sits at the upper end of the EMDE range. For the tolerance band, two-thirds backed retaining the ±2 per cent band, citing its flexibility during shocks like COVID-19 and the Russia-Ukraine war. Finally, 52 of 56 respondents favoured keeping the point target structure over a pure range target.
What This Means for India’s Monetary Policy Ahead
The renewal of India’s inflation targeting framework provides stability during global uncertainty. However, Dr. Gupta noted that continuity does not mean complacency. If inflation and growth outcomes remain favourable over the next five years, a slightly lower target and narrower band could be considered at the 2031 review.
Additionally, the RBI plans to improve communication around core inflation measures on an ongoing basis. The framework’s core architecture remains intact, however, and is well-positioned to guide India’s monetary policy through evolving challenges.
Source: RBI Speeches
