The central government has retained the 4% retail inflation target for the next five years, from April 1, 2026, to March 31, 2031, with a tolerance band of 2–6%. This decision, made in consultation with the Reserve Bank of India (RBI), continues the inflation-targeting framework that was first introduced in 2016. The move aims to maintain price stability while allowing some flexibility in the target, accommodating short-term volatility.
The government’s inflation target, outlined in a gazette notification issued by the Department of Economic Affairs, also sets the upper limit at 6% and the lower limit at 2%, in accordance with the provisions under Section 45ZA of the RBI Act, 1934. This marks the second consecutive extension of the same target, following a similar decision in 2021.
The inflation-targeting framework was first adopted in India in 2016, with the RBI tasked with maintaining inflation around 4% through its Monetary Policy Committee (MPC), headed by the RBI Governor. Over the past decade, inflation has largely remained within the prescribed band for about three-fourths of the time, despite periods of heightened volatility during events like the COVID-19 pandemic and the Russia-Ukraine conflict.
Recent data showed that retail inflation in India rose to 3.21% in February 2026, compared to 2.74% in the previous month. The inflation numbers are based on a revised Consumer Price Index (CPI) series, with 2024 as the new base year.
The RBI had earlier released a discussion paper in 2025, seeking feedback on various aspects of the inflation-targeting framework, including whether the 4% target remains optimal or if the tolerance band should be adjusted. The RBI has praised the FIT framework for its performance in maintaining inflation levels at around 4% in the early years and stabilizing in recent times after a global surge in inflation.
Globally, inflation targeting has become the predominant monetary policy approach, first adopted by New Zealand in 1990. In India, the FIT framework has helped reduce average inflation to 4.9% in the post-FIT period, down from 6.8% prior to its adoption. The RBI’s continued focus on policy certainty and credibility is crucial as global and domestic economic uncertainties persist. The extension of the inflation target ensures that India remains on track to achieve its macroeconomic stability goals over the next five years.
