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RBI seeks public feedback on 4 pc inflation targeting regime
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....BI seeks public feedback on 4 pc inflation targeting regime<BR>FEMA / RBI<BR>Dated:- 21-8-2025<BR>PTI<BR>Mumbai, Aug 21 (PTI) The Reserve Bank on Thursday 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....
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.... 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 ....
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....4 per cent with a tolerance band of +/- 2 per cent during 2016-21. The same parameters were retained for the subsequent five years (April 1, 2021, to March 31, 2026). The RBI Governor-headed six-member Monetary Policy Committee (MPC) determines the policy rate required to achieve the inflation target. Against the backdrop of the next review of the target to be effective from April 1, 2026, and ....
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....the significant changes in the global and domestic economic environment, the RBI said it has undertaken a review of the nature and format of the inflation target. Towards this, it has come out with a discussion paper seeking feedback from stakeholders on four questions: Whether headline inflation or core inflation would best guide the conduct of monetary policy, given evolving relative dynamics ....
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....of food and core inflation and the continuing high weight of food in the CPI basket? Whether the 4 per cent inflation target continues to remain optimal for balancing growth with stability in a fast-growing, large emerging economy like India? Should the tolerance band around the target be revised in any way, including whether the tolerance band be narrowed, widened or fully done away with? Shou....
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....ld the target inflation level be removed, and only a range be maintained within the overall ambit of maintaining flexibility without undermining credibility? The discussion paper said the inflation performance over the nine years of FIT witnessed a hump-shaped performance, with the first three years and the last three years remaining aligned to the target. The middle three years showed an inclin....
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....ation towards the upper tolerance band, confronted with a once-in-a-century pandemic followed by the Russia-Ukraine conflict that drove up the inflation trend worldwide during this period. "The experience of the FIT framework, introduced in the year 2016 and first reviewed in 2021, has broadly performed well. From the inception of FIT till about the end of 2019, inflation was low and stable, aver....
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....aging around 4 per cent," it said. It further said 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. The adaptability and flexibilit....
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....y already inbuilt into the extant framework should be leveraged to nudge the economy towards further improved macroeconomic outcomes. Inflation targeting (IT) turns 35 this year. With New Zealand being the first country to implement IT in 1990, it has become the most widely adopted monetary policy framework globally. The paper said the inflation levels have seen a distinct decline with the avera....
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....ge since the adoption of FIT at 4.9 per cent, vis-a-vis an average of 6.8 per cent over the pre-FIT period in the current series. "As we undertake this review, we intend to hear from all stakeholders and collate a pool of ideas before deciding on the final recommendations," the RBI said while seeking comments/feedback by September 18, 2025. PTI NKD NKD BAL BAL<BR> News - Press release - PIB....