The Centre is likely to retain the RBI’s 4% inflation target, citing its effectiveness in anchoring prices.
The RBI has favoured maintaining the current framework as inflation eased to multi-year lows toward end-2025.
With inflation expected to edge up, room for further rate cuts has narrowed after the MPC cut rates by 125 bps in 2025.
The Centre is likely to retain the existing inflation target of 4% for the Reserve Bank of India (RBI), Bloomberg reported, citing sources. The government is expected to maintain the status quo, as the current target is viewed as effective in managing price stability.
At present, the RBI aims to keep inflation anchored around 4%, with a tolerance band of 2% on the lower side and 6% on the upper side. The inflation target is set by the government every five years and is due for review in March, the report said.
1 January 2026
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The government has also sought feedback from the central bank, which has favoured retaining the current target following internal deliberations, Bloomberg reported, citing sources familiar with the matter.
India formally adopted the inflation-targeting framework in 2016, a move widely credited with helping contain price volatility, including during periods of supply-side shocks triggered by global geopolitical events. Inflation has eased faster than expected in recent months, with both the wholesale price index (WPI) and consumer price index (CPI) falling to multi-year lows toward the end of last year.
While inflation picked up slightly in November, it remained well below the RBI’s 4% target. The inflation target plays a central role in guiding the RBI’s interest-rate decisions, helping anchor price expectations around the midpoint of the band over the medium term.
At its December monetary policy meeting, the RBI revised its CPI inflation forecast for FY26 downward to 2.0% from 2.6%. Inflation expectations for Q2FY27 are pegged at 4%. The central bank has noted that the inflation outlook remains favourable, supported by deflation in food prices, adequate reservoir levels, and healthy agricultural output.
However, with inflation expected to firm up in the coming months, the room for further rate cuts seems to be narrowing, according to economists. The Monetary Policy Committee (MPC) cut policy rates by a cumulative 125 basis points in 2025, bringing the benchmark repo rate down to 5.25% from 6.50% in December 2024. The MPC is scheduled to meet next on February 4–5, with market participants divided over the likely policy outcome.
