Daijiworld Media Network – New Delhi

New Delhi, Mar 26: The Central government on Wednesday notified a 4 per cent retail inflation target with a tolerance band of 2 percentage points on either side for a five-year period from April 1, 2026, to March 31, 2031.

The decision, issued through a gazette notification by the Department of Economic Affairs under the RBI Act, was taken in consultation with the Reserve Bank of India, retaining the existing inflation-targeting framework.

As per the notification, the upper tolerance limit has been fixed at 6 per cent, while the lower limit stands at 2 per cent.

This marks the second consecutive extension of the same target since the introduction of the flexible inflation targeting (FIT) framework in 2016, which was earlier continued in 2021. Under this framework, the six-member Monetary Policy Committee is mandated to maintain inflation around the 4 per cent target.

Official data indicates that inflation has remained within the prescribed band for nearly three-fourths of the time over the past decade, though volatility was observed during the COVID-19 pandemic and the Russia-Ukraine conflict.

Recent figures show retail inflation rose to 3.21 per cent in February from 2.74 per cent in the previous month, based on the Consumer Price Index (CPI) with 2024 as the base year.

Ahead of the notification, the RBI had released a discussion paper in August 2025 seeking feedback on key aspects of the framework, including the suitability of the 4 per cent target and the current tolerance band.

The central bank noted that the inflation-targeting framework has largely performed well, ensuring policy stability and credibility amid global and domestic uncertainties.

Globally, inflation targeting has been widely adopted since it was first introduced by New Zealand in 1990. In India, average inflation has declined to around 4.9 per cent in the post-FIT period, compared to 6.8 per cent prior to its implementation.