Roadmap set to control inflation, target to be in the range of 2-6%

The central government has once again maintained the retail inflation target for the Reserve Bank of India (RBI). Under this target, the RBI has been tasked with maintaining inflation at 4 percent for the next five years, from April 1, 2026, to March 31, 2031. 

However, this target also comes with a 2 percent upper and lower ceiling. This means that inflation should remain within the range of 2 percent to 6 percent.

Inflation targeting system was introduced in 2016

Inflation targeting was formally implemented in India in 2016. At that time, the government first assigned the RBI a target of 4 percent for five years, 

ending March 31, 2021. This target was subsequently extended in March 2021. Now, for the third time, the government has set targets for the next five years, continuing with the same framework.

Notification issued in the gazette

A gazette notification issued by the Department of Economic Affairs on March 25 stated that the central government, in consultation with the RBI, 

has notified the inflation target for the period 2026 to 2031. According to the notification, the median inflation target will be 4 percent, with an upper limit of 6 percent and a lower limit of 2 percent.

The important role of the MPC

The RBI's six-member Monetary Policy Committee (MPC) is responsible for controlling inflation. 

The MPC initiated the process of implementing this target at its first meeting in October 2016. The committee attempts to keep inflation within a set range through interest rates and other policy decisions.

Performance over the past decade and latest figures

Over the past decade, inflation in India has remained within the target range for most of the time. 

However, inflation did fluctuate during the COVID-19 pandemic. According to the latest data, retail inflation rose to 3.21 percent in February, compared to 2.74 percent in January. Despite this, inflation remains within the RBI's prescribed range.

Experts believe that maintaining the inflation target ensures stability in policy making and gives a clear signal to investors and the market that the government and the central bank are committed to keeping inflation under control.