RBI's Inflation Targeting Framework

The Reserve Bank of India operates under a flexible inflation targeting (FIT) framework, established under the RBI (Amendment) Act, 2016. Under this framework, the Monetary Policy Committee (MPC) — a six-member body — is mandated to maintain CPI inflation at 4%, with a tolerance band of ±2%. The central government, in consultation with RBI, sets the target every five years. Failure to maintain inflation within the band for three consecutive quarters obligates the RBI to submit an explanatory report to the government.