The Central Government has once again maintained the target of retail inflation for the Reserve Bank of India (RBI). Under this, RBI has been given the responsibility of maintaining inflation at 4 percent for the next five years i.e. from 1 April 2026 to 31 March 2031. However, along with this target, an upper and lower limit of 2 percent has also been fixed. This means that the inflation rate should remain in the range of 2 percent to 6 percent.
Inflation targeting system was started in 2016
In India, the system of inflation targeting was formally implemented in the year 2016. At that time, for the first time, the government had given a target of 4 percent to RBI for five years, the period of which was till March 31, 2021. After this, the same target was taken forward in March 2021 also. Now for the third time, the government has set targets for the next five years by continuing the same framework.
Notification issued in the Gazette
The gazette notification issued by the Department of Economic Affairs on March 25 said the central government, in consultation with the RBI, has notified the inflation target for the period 2026 to 2031. According to the notification, the middle target of inflation will be 4 percent, while its upper limit has been fixed at 6 percent and lower limit at 2 percent.
Important role of MPC
The responsibility of keeping inflation under control rests with the six-member Monetary Policy Committee (MPC) of RBI. The MPC started the process of implementing this target in its first meeting in October 2016. The committee tries to keep inflation within the prescribed range through interest rates and other policy decisions.
Last decade’s performance and latest figures
In the last decade or so, inflation in India has remained within the prescribed limits most of the time. However, fluctuations in inflation were seen during the Covid-19 pandemic. According to the latest data, retail inflation increased to 3.21 percent in the month of February, whereas it was 2.74 percent in January. Despite this, inflation still remains within the range set by RBI.
Experts believe that maintaining the inflation target maintains 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.