Indian govt keeps RBI's inflation target unchanged at 4% for next five years

The Indian government on Wednesday renewed the Reserve Bank of India's inflation mandate without any changes, asking the central bank to keep retail inflation at 4 per cent with a tolerance band of 2 per cent on either side, for another five years ending March 2031.

The decision, notified by the Department of Economic Affairs, means the upper limit stays at 6 per cent and the lower limit at 2 per cent. This is the second consecutive time the government has retained the same target unchanged since the framework was first put in place in 2016.

India formally adopted inflation targeting in 2016, tasking the RBI's six-member Monetary Policy Committee with keeping the price rise in check. The MPC, chaired by the RBI Governor, uses the inflation target as its anchor when deciding on interest rates.

Initially, the mandate was set for five years, till 2021. However, the government renewed it then without changes, and has now done so again.

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Over the past decade, inflation has mostly stayed within the mandated band. However, the framework ran into trouble mainly during the Covid pandemic and in the aftermath of the Russia-Ukraine conflict, when rising global commodity prices pushed prices towards the upper end of the band.

The latest inflation numbers in India show retail inflation at 3.21 per cent in February, up from 2.74 per cent in January, both within the limit of the price band. However, now the data is based on a new Consumer Price Index series with a base year of 2024.

The renewal of the inflationary target was not without deliberation. The RBI had published a discussion paper in August 2025 inviting feedback on whether to target headline or core inflation, whether 4 per cent remains the right number for a fast-growing emerging economy, and whether the tolerance band should be widened, narrowed or scrapped altogether.

The RBI's own review concluded that the framework has broadly worked well.

Since the adoption of inflation targeting, average inflation has come in at 4.9 per cent, compared to 6.8 per cent in the years before the framework was introduced.