MUMBAI: India’s inflationas measured by consumer price indexis expected to average 4.5% in the current fiscal before gradually aligning with the 4% target on a durable basis in FY26, according to RBI deputy governor. Michael Patra,
speaking on inflation targeting and its evolution, Patra emphasized that India’s flexible inflation targeting framework has allowed RBI to address price stability while accommodating growth, even amid repeated food and fuel price shocks.
“The monetary policy response (to the inflation spike after the Ukraine war) was front-loaded with a cumulative hike of 250 basis points during May 2022-Feb 2023. In July and Aug 2024, inflation has fallen below the target. It is projected to average 4.5% in 2024-25 before aligning with the target on a durable basis in 2025-26,” Patra said at an RBI conference in Delhi on Monday. His comments come in the wake of the CPI rising to 5.49%. in Sept – higher than the 3.65% in Aug. This is the highest retail inflation rate since Dec last year, when it was 5.69%.
Patra highlighted that since India’s adoption of inflation targeting in 2016, the framework has proven effective in stabilizing inflation. Even as challenges posed by the pandemic and global events such as the Russia-Ukraine conflict drove inflation to a peak of 7.8% in April 2022, RBI’s monetary policy response – including a 250 basis point hike in interest rates from May 2022 to Feb 2023 – helped bring inflation back within the target range. As of July and Aug of this year, inflation fell to below the upper tolerance limit of the 4% target.
The deputy governor also pointed to global lessons from inflation targeting, noting that it remains the longest-surviving monetary policy framework globally. He acknowledged that while inflation targeting has faced significant challenges including the global financial crisis, Covid, and geopolitical conflicts, it has stood the test of time due to its flexibility, transparency, and credibility.
Patra added that the shared responsibility between govt, which sets the target, and RBI, which achieves it, ensures coordination between the country’s monetary and fiscal policies without jeopardizing financial stability or growth. Looking ahead, he cautioned that inflation targeting frameworks worldwide may face even greater challenges due to climate change and digitalisation.
