RBI’s Gupta Flags Possible Tweaks to Inflation Framework at 2031 Review

India’s inflation-targeting framework could see calibrated changes at its next review, with scope for a lower target and a narrower tolerance band if the current mix of stable inflation and steady growth persists, Reserve Bank of India Deputy Governor Poonam Gupta said in a speech today. 

The decision to retain the 4% consumer price inflation target with a ±2 percentage point band through March 2031 reflects the need for both predictability and flexibility at a time of elevated global uncertainty, she said at NCAER.

Any future changes will depend on how the growth-inflation trade-off evolves over the next five years, with a continuation of robust growth alongside low and stable inflation potentially justifying modest adjustments to the target level and band, she said.

The current framework has delivered improved outcomes, with average inflation moderating to 4.6% in 2016–26 from 8.1% in the previous decade, while growth remained broadly stable, suggesting price stability and growth have been complementary rather than conflicting objectives.

Feedback from the latest consultation showed strong support for retaining the existing design, with more than 90% of respondents favouring headline CPI as the policy target and a similar proportion backing the 4% target.

Around two-thirds supported retaining the ±2 percentage point tolerance band, citing its role in absorbing shocks such as the pandemic and the Ukraine war without undermining credibility, while an overwhelming majority rejected a shift to pure range-based targeting.

Even as headline inflation remains the formal anchor, the consultation revealed a growing preference for incorporating core inflation into policy assessment, as stripping out volatile food and fuel components provides a clearer signal of underlying demand conditions and persistence in price pressures.

The RBI has started presenting core inflation projections alongside headline forecasts in its monetary policy communications.

The central bank may also refine its engagement on core inflation measures and strengthen communication further as part of the framework’s ongoing evolution, Gupta said.

The overarching message is continuity with optionality, retaining the current framework in an uncertain global setting while preserving room for incremental adjustments if macroeconomic conditions allow.