The government of India has retained the inflation target for second consecutive period, and asked the Reserve Bank of India (RBI) to maintain retail inflation at 4% with a margin of 2% on either side for another five years ending March 2031. In 2016, India has adopted the inflation-targeting framework in order to control the price rise, and formally tasked the central bank to keep the retail inflation with in the target range. Subsequently, in March 2021, the government maintained the same target. Over the past decade, inflation has stayed within the mandated band for roughly three-quarters of the time, with volatility peaking during the pandemic years. In February 2026, retail inflation in the country increased to 3.21% from 2.74% in the preceding month. The Consumer Price Index (CPI) released earlier this month is based on the new series with a base year of 2024.  

The RBI Governor-headed six-member Monetary Policy Committee (MPC) determines the policy rate required to achieve the inflation target. Further, against the backdrop of the next review of the target to be effective from April 1, 2026, and 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. For this, the central bank came out with a discussion paper in August 2025 seeking feedback from stakeholders on four questions.

The discussion paper said the inflation performance over the nine years of flexible inflation targeting (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 inclination 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. It added that the inflation levels have seen a distinct decline with the average since the adoption of FIT at 4.9%, vis-a-vis an average of 6.8% over the pre-FIT period in the current series.

The central bank stressed that the conduct of monetary policy frameworks needs both policy certainty and credibility. It noted that policy certainty and credibility have become particularly important during the current environment of heightened uncertainty, therefore, it is important that the basic tenets of the framework that have been tested and judged to be favourable are continued. It added that the adaptability and flexibility already inbuilt into the extant framework should be leveraged to nudge the economy towards further improved macroeconomic outcomes.