RBI's Future Inflation Strategy: Adapting to Global Shocks

RBI Deputy Governor Poonam Gupta suggests that India may consider adjusting its inflation target if GDP remains strong and inflation stable over the next five years. However, global economic challenges may require maintaining the current framework. The target is set at 4% (+/-2%) from FY27-FY31.

India might contemplate adjusting its inflation target if GDP growth stays strong and inflation stabilizes over the next five years, according to RBI Deputy Governor Poonam Gupta. She emphasized the importance of maintaining predictability and flexibility amid global challenges.

The government, in coordination with the RBI, has outlined a framework keeping inflation at 4% (+/-2%) through March 2031. Gupta noted that any changes would rely heavily on future growth-inflation trends and global economic conditions.

International experiences suggest a lower inflation target could be viable. Still, Gupta highlighted the need for flexibility to manage external shocks, supporting the current 4% target with a 2% tolerance band until 2031.