Govt Asks Reserve Bank of India to Maintain Retail Inflation at 4% Till March 2031

The Centre has extended the inflation-targeting mandate for the Reserve Bank of India (RBI), directing it to maintain retail inflation at 4 per cent , with a tolerance band of 2–6 per cent , for another five-year period ending March 31, 2031. The decision reinforces policy continuity and underscores the importance of price stability in sustaining economic growth.

The framework, first introduced in 2016 and renewed in 2021, places the responsibility of managing inflation on the six-member Monetary Policy Committee (MPC), chaired by the RBI Governor. The MPC meets regularly to assess inflation trends and sets the policy repo rate , the key instrument used to influence borrowing costs across the economy.

Over the past five years, the Reserve Bank of India has largely succeeded in keeping inflation within the mandated 2–6 per cent target band , despite facing multiple global and domestic shocks. Inflation briefly surged beyond the upper tolerance level during extraordinary periods such as the COVID-19 pandemic, supply chain disruptions, and later during the Russia–Ukraine war, which triggered a sharp spike in global commodity and crude oil prices. More recently, geopolitical tensions including the Gaza war have added to volatility in energy and food prices worldwide.

To contain these inflationary pressures, the RBI adopted a calibrated monetary tightening cycle, raising policy rates, withdrawing excess liquidity, and maintaining a cautious stance to anchor inflation expectations. These measures helped gradually bring inflation back within the target range after periods of overshooting. The central bank also balanced its approach by supporting growth during downturns and tightening policy during inflation spikes, reflecting the flexibility embedded in India’s inflation-targeting framework. Overall, despite global uncertainties, the RBI’s policy response has ensured that inflation remains broadly aligned with its medium-term target, reinforcing credibility in its inflation management strategy.

Recent data shows inflation at around 3.21 per cent in February 2026 , remaining within the RBI’s target range. However, policymakers remain cautious due to risks from global commodity prices, supply disruptions, and geopolitical tensions.

India follows a Flexible Inflation Targeting (FIT) regime, which allows temporary deviations within the 2–6 per cent band while ensuring long-term price stability. If inflation breaches this band for three consecutive quarters, the RBI is required to explain the reasons and corrective steps to the government, ensuring accountability.

Since its adoption, the framework has significantly improved macroeconomic stability. Inflation has remained within the target band for a majority of the time, even amid shocks such as the COVID-19 pandemic and global conflicts.

By extending the inflation target unchanged till 2031, the government has signalled confidence in the existing policy framework. The focus now shifts to how effectively the RBI balances inflation control with economic growth , especially in an uncertain global environment.

With monetary policy tools, institutional accountability, and a clear target in place, the RBI remains at the forefront of India’s effort to keep prices stable while supporting sustained economic expansion.