Reserve Bank of India is consulting the public on whether to maintain the current 4% inflation target

India’s central bank said on Thursday that the existing inflation-targeting regime has broadly delivered for the economy and likely needs no overhaul, and it released a discussion paper to gather public input on the path ahead.

As the framework comes up for review by April 2026, the Reserve Bank of India (RBI) invited feedback on retaining the 4% goal and on whether to revisit or discard the 2 percentage-point tolerance band.

As reported by Reuters, the paper also asks whether policy should continue to target headline inflation or pivot to core inflation, which excludes food and fuel.

The consultation follows a government paper last year calling for a fresh appraisal after repeated spikes in food and vegetable prices. At the time, members of the central bank’s rate-setting committee had also signalled support for sticking with the current approach.

The RBI cautioned that leaving food out of the target risks overlooking pressures on households with limited incomes. Ignoring food inflation “would be tantamount to being oblivious of the cost of living of the poor and its welfare implications,” the paper said.

It noted that, across income levels and target designs, most countries focus on headline inflation. Over time, food and core inflation typically converge, though the speed of convergence depends on “economic circumstance,” it said.

RBI defends current rules as successful

The paper argued that the current rules have aided disinflation while preserving room to respond to external shocks. “Justifications for pursuing with the target and the framework stem from the relative success in bringing disinflation as well as flexibility in responding to exogenous shocks,” it said.

The RBI also flagged potential costs to changing the objective. Raising the target above 4% could be read by investors as weakening the framework, while lowering it may be hard to justify amid higher global food prices.

Dropping a point target and relying solely on a band could be perceived as “indifference” to inflation outcomes, it added.

Its analysis suggests trend inflation has hovered around 4% since the framework began in 2016.

The government, in consultation with the RBI, will make the ultimate decision on any modifications.

“The conduct of monetary policy frameworks needs both policy certainty and credibility,” the paper said, adding, “It is, therefore, important that the basic tenets of the framework that have been tested and judged to be favourable are continued.”

Previous economic survey proposal sparked debate on policy focus

Last month’s official economic report also floated targeting inflation that excludes volatile food prices, often driven by supply shocks. That proposal has stirred debate over the most appropriate policy target for India.

Cryptopolitan previously highlighted how global trade uncertainty and domestic food inflation are influencing the RBI’s decisions.

India adopted inflation targeting in 2016, assigning a 4% headline goal to the RBI’s Monetary Policy Committee (MPC). Because food costs have kept headline inflation above that mark even as core fell to about 3%, a record low, some analysts have urged the MPC to put more weight on the latter.

Shashanka Bhide, an external MPC member, said gauging underlying price pressures requires looking at the full consumption basket.

“If we use a partial basket for a target then it would not reflect the overall price pressures and if the target is the core alone, then it should in some way capture the trend of food inflation or fuel inflation if not the volatility,” Bhide told Reuters.

Made up of three RBI officials and three government-appointed externals, the MPC has held the repo rate at 6.5% for nine consecutive meetings, citing persistent food inflation. Economic growth is projected to slow to 7.2% this fiscal year from 8.2% last year.

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