India unlikely to raise inflation target, RBI Governor Sanjay Malhotra says; expects strong growth

The RBI Governor has stated that India is unlikely to raise its 4% inflation target, and has signalled that a long-term reduction in the target may be consid...

What Happened

The RBI Governor has stated that India is unlikely to raise its 4% inflation target, and has signalled that a long-term reduction in the target may be considered as the framework matures.
The current Flexible Inflation Targeting (FIT) framework has been credited with reducing average inflation levels over the period it has been in operation.
Consumer Price Index (CPI)-based inflation is currently running below the RBI's 4% benchmark target, even as economic growth remains robust.
The Government of India formally renewed the inflation target of 4% (with a ±2% tolerance band) for the five-year period from 1 April 2026 to 31 March 2031 — the second such renewal since the FIT framework was adopted in 2016.
The RBI's mandate remains price stability as the primary objective, while keeping the objective of growth in view.

Static Topic Bridges

Flexible Inflation Targeting (FIT) Framework

India formally adopted Flexible Inflation Targeting (FIT) in 2016, following the recommendations of the Expert Committee to Revise and Strengthen the Monetary Policy Framework (the Urjit Patel Committee, 2014). The Finance Act, 2016 amended the Reserve Bank of India Act, 1934 to give the FIT framework a statutory footing. Under FIT, price stability — defined as maintaining CPI inflation at 4% (±2%) — is the primary objective of monetary policy, while growth is a secondary objective. The framework is "flexible" because the RBI can deviate temporarily from the target to support growth, provided it explains such deviations.

The legal basis is Section 45ZA of the RBI Act, 1934 (as amended), which mandates the Central Government to determine the inflation target in consultation with the RBI, once every five years.
The inflation measure used is CPI (Consumer Price Index — Combined), not WPI (Wholesale Price Index).
The current target of 4% ±2% (floor: 2%, ceiling: 6%) was first set for 2016–2021, renewed for 2021–2026, and has now been renewed again for 2026–2031.

Connection to this news: The RBI Governor's statement that the target is unlikely to be raised — and may eventually be lowered — reflects confidence in the FIT framework's effectiveness in anchoring inflation expectations and reflects the framework's statutory five-year review cycle.

Monetary Policy Committee (MPC): Composition and Powers

The Monetary Policy Committee (MPC) is the statutory body established under Section 45ZB of the RBI Act, 1934 to determine the policy repo rate — the primary instrument for achieving the inflation target. The MPC has six members: three ex-officio members from the RBI (the Governor as Chairperson, the Deputy Governor in charge of Monetary Policy, and one officer nominated by the Central Board), and three external members appointed by the Central Government. Each member has one vote; the Governor has a casting vote in case of a tie. The MPC is required to meet at least four times per year.

The current RBI Governor is Sanjay Malhotra (appointed December 2024, succeeding Shaktikanta Das).
MPC decisions are by majority; the Governor's casting vote applies only in a deadlock.
If CPI inflation remains outside the 2%–6% band for three consecutive quarters, the RBI must submit a written report to the Government explaining the reasons, the remedial actions proposed, and the estimated time to return to target.

Connection to this news: The RBI Governor's public commentary on the inflation target trajectory is significant because the target is set by the Government in consultation with the RBI — the Governor's signalling shapes both market expectations and the political economy of the next five-year target review.

Repo Rate and Monetary Policy Transmission

The policy repo rate is the rate at which the RBI lends overnight funds to commercial banks against eligible collateral. Raising the repo rate increases the cost of borrowing across the economy, reducing consumption and investment demand, and thereby moderating inflationary pressure. Lowering it stimulates credit growth and economic activity. The transmission of repo rate changes to bank lending rates depends on liquidity conditions, bank competition, and the structure of loan contracts (fixed vs. floating rate).

The repo rate is the MPC's primary instrument under the FIT framework.
The RBI also uses Open Market Operations (OMO), the Cash Reserve Ratio (CRR), and the Standing Deposit Facility (SDF) as supplementary liquidity management tools.
Effective monetary transmission to retail borrowers has historically lagged in India due to the prevalence of fixed-rate deposits and the slow repricing of loan portfolios.

Connection to this news: With CPI inflation below the 4% target and growth projected to remain robust, the MPC has space to maintain an accommodative or neutral policy stance — the Governor's remarks signal that the current monetary policy configuration is broadly appropriate.

CPI vs. WPI: Why CPI is India's Monetary Anchor

India switched from using the Wholesale Price Index (WPI) to the Consumer Price Index — Combined (CPI-C) as the headline inflation indicator for monetary policy following the Urjit Patel Committee's recommendation. CPI measures price changes from the perspective of the final consumer, covering food, fuel, housing, clothing, and miscellaneous items, and is therefore a more direct measure of the cost of living. WPI, by contrast, measures prices at the producer/wholesale level and tends to be more volatile due to commodity price swings.

CPI-C is released monthly by the Ministry of Statistics and Programme Implementation (MoSPI).
Food and beverages carry the highest weight in CPI (~45%), making food inflation the dominant driver of headline CPI.
Core inflation (CPI excluding food and fuel) is closely watched by the MPC as it reflects demand-side price pressures.

Connection to this news: The RBI's statement that inflation is below 4% refers specifically to CPI-C — a signal that both headline and food inflation have moderated, giving the MPC room to focus on supporting growth without compromising the price-stability mandate.

Key Facts & Data

India's inflation target (FIT framework): 4% CPI, with ±2% tolerance band (floor 2%, ceiling 6%)
Current FIT period: 1 April 2026 – 31 March 2031 (second renewal)
Statutory basis: Section 45ZA, RBI Act, 1934 (amended via Finance Act, 2016)
MPC composition: 6 members — 3 RBI (Governor as Chair, Deputy Governor, 1 nominated officer) + 3 external Central Government appointees
Statutory basis for MPC: Section 45ZB, RBI Act, 1934
MPC meeting frequency: minimum 4 times per year
Accountability trigger: 3 consecutive quarters outside 2%–6% band → mandatory report to Government
Inflation measure used: CPI-C (Consumer Price Index — Combined), released monthly by MoSPI
RBI Governor: Sanjay Malhotra (appointed December 2024)
FIT first adopted: 2016 (on recommendation of Urjit Patel Committee, 2014)
Weight of food & beverages in CPI: approximately 45%