Udyo Logo

Udyo

Get the Udyo Mobile App

Sign in to save your progress and access all features.

Retail Inflation Target of 4% Extended till March 2031

The Government of India has directed the Reserve Bank of India (RBI) to maintain the retail inflation target at 4% (±2%) for another five-year period till March 31, 2031. This decision continues the existing inflation targeting framework under the Monetary Policy Framework Agreement. The move ensures price stability, supports economic growth, and strengthens policy predictability in India’s monetary system.e

The Government of India has extended the inflation target of 4% for the Reserve Bank of India till March 31, 2031. This decision continues the existing Monetary Policy Framework Agreement between the government and RBI.

Under this framework:

  • Target inflation = 4%
  • Tolerance band = 2% to 6%

This system is known as Flexible Inflation Targeting (FIT). It was introduced in 2016 after amending the RBI Act, 1934.

The Monetary Policy Committee (MPC) is responsible for maintaining this target. It uses tools like:

  • Repo rate
  • Reverse repo rate
  • Liquidity adjustment

Retail inflation is measured using the Consumer Price Index (CPI), released monthly by MoSPI.

If inflation remains outside 2–6% for three consecutive quarters, RBI must explain reasons and corrective steps to the government.

This decision is important because:

  • Ensures price stability
  • Builds investor confidence
  • Supports long-term economic growth

India follows global practices where central banks focus on inflation control.

🔑 Key Points

  • Inflation target fixed at 4% till March 2031
  • Tolerance band remains 2%–6%
  • Introduced in India in 2016
  • MPC is responsible for policy decisions
  • CPI is main inflation indicator
  • RBI uses repo rate to control inflation
  • Failure defined as 3 consecutive quarters breach
  • Ensures macroeconomic stability

🧠 Concept Link (Very Important)

  • Inflation = rise in general price levels
  • CPI measures retail price inflation
  • Repo rate = rate at which RBI lends to banks
  • Monetary Policy = control of money supply
  • Flexible Inflation Targeting balances growth and inflation
  • RBI Act, 1934 provides legal framework

❓ Practice Questions (MCQ)

1.What is India’s retail inflation target?
A) 2%
B) 4%
C) 6%
D) 8%

Answer: B

2.Inflation targeting framework was introduced in which year?
A) 2014
B) 2015
C) 2016
D) 2018

Answer: C

3.Which body decides India’s monetary policy?
A) Finance Commission
B) RBI Governor
C) Monetary Policy Committee
D) SEBI

Answer: C

4.CPI is released by which organisation?
A) RBI
B) MoSPI
C) NITI Aayog
D) SEBI

Answer: B

5.Inflation breach is defined after how many quarters?
A) 1
B) 2
C) 3
D) 4

Answer: C

📜 Previous Year Question (Similar Type)

1. What is the main objective of inflation targeting in India?
Answer: Price stability while supporting economic growth

2. Which index is used to measure retail inflation in India?
Answer: Consumer Price Index (CPI)

⚠️ Examiner Trap

Students often confuse CPI with WPI. CPI measures retail inflation, not wholesale prices.

🧭 Exam Tip

Questions are frequently asked on inflation target values, MPC role, and CPI vs WPI differences.

🏷️ Topics Covered

  • RBI
  • Inflation
  • CPI
  • Monetary Policy
  • MPC
  • Repo Rate
  • RBI Act 1934
  • Flexible Inflation Targeting
  • Economy