Inflation Framework
Why it matters?
With the September 18 deadline for feedback on RBI’s monetary policy framework, former MPC members largely support retaining the current Flexible Inflation Targeting (FIT) regime of 4% CPI inflation within a 2–6% band, citing its role in stabilising expectations and growth.
What you should know?
Current Inflation Framework in India
Adoption: FIT was formally adopted in 2016 under the amended RBI Act, 1934.
Target: CPI inflation 4%, with a tolerance band of 2–6%.
Review Period: The framework must be reviewed every 5 years by the Government in consultation with RBI. The current term ends March 2026.
Key Features
Inflation Measure: Based on Consumer Price Index (CPI), not Wholesale Price Index (WPI).
Mandate: RBI’s primary goal is to maintain price stability while supporting growth.
MPC Role: The Monetary Policy Committee (MPC) sets repo rate decisions by majority voting to keep inflation within target.
Accountability: If inflation remains above 6% or below 2% for 3 consecutive quarters, RBI must write an explanatory letter to the government.