The Reserve Bank of India (RBI) is expected to retain the core components of its flexible inflation targeting (FIT) framework, with most economists favouring continuity in the current approach of targeting headline retail inflation within a 2–6 per cent band. According to industry sources, the framework, introduced in 2016, has played a key role in stabilising inflation and anchoring expectations, and does not warrant immediate changes.
Economists note that while the inflation tolerance band was set at a relatively low level at inception, any review or recalibration could be considered only over the next 5–10 years, as inflation forecasting and policy transmission improve further. For now, policy clarity and credibility are seen as more important than experimentation.
Gaura Sen Gupta, Chief Economist at IDFC FIRST Bank, said headline consumer price index (CPI) inflation should continue to be the policy anchor. She argued that food inflation, though largely supply-driven, has a strong influence on inflation expectations and cannot be ignored by monetary policy. According to her, the 4 per cent point target remains optimal, and narrowing the 2–6 per cent band could make policy overly restrictive, while raising the target may dilute the RBI’s inflation mandate.
Sakshi Gupta, Principal Economist at HDFC Bank, echoed this view, noting that headline inflation better captures the price pressures faced by households, especially low- and middle-income groups that spend a large share of their income on food. She added that the new inflation series to be introduced in February would further improve the representativeness of headline inflation data.
Soumyajit Niyogi, Director at India Ratings & Research, said the existing FIT framework has helped stabilise core inflation, anchor expectations, and guide policy rates closer to their lower bound over time.
Other economists also cautioned against shifting focus to sub-components of inflation. Madan Sabnavis of Bank of Baroda said central banks must control overall inflation, while Sujit Kumar of NABFID highlighted that the current framework has reduced inflation volatility and helped lower the cost of capital by keeping expectations anchored around the 4 per cent target.
.jpg)