The Reserve Bank of India (RBI) has expressed satisfaction with its current inflation targeting strategy and has initiated public discussions regarding its future.
Discussion on Inflation Targeting Strategy
On Thursday, the RBI released a discussion paper stating that the existing inflation targeting framework has generally succeeded. The bank invited feedback on maintaining the 4% target and whether to revisit or discard the 2 percentage-point tolerance band.
RBI Defends Current Rules
The paper argues that the current rules have contributed to disinflation while allowing room to respond to external shocks. 'Justifications for continuing the target and the framework stem from the relative success in bringing down inflation and flexibility in responding to exogenous shocks,' the paper states. The RBI also highlighted potential risks associated with changing the objective.
Debate on Future Inflation Targeting
Last month’s official economic report also discussed the possibility of targeting inflation excluding volatile food prices. This proposal has sparked debates over what policy focus would be most appropriate for India. Some analysts are urging for a greater emphasis on core prices as volatile food items continue to drive inflation above the target.
With a review of the strategy approaching in 2026, the RBI continues to seek public opinion and information to reinforce its monetary policy, emphasizing the importance of both flexibility and target commitment.
