Inflation target can be cut if growth, stable prices persist: RBI deputy governor

New Delhi: India could consider lowering its inflation target and narrowing the tolerance band if strong growth and stable prices persist over the next five years, Reserve Bank of India deputy governor Poonam Gupta said on Tuesday. However, she said the current framework should remain in place if global conditions continue to be as challenging as in recent years, given its balance of predictability and flexibility.

The government in March retained the inflation target at 4% with a tolerance band of +/-2% for a five-year period through March 31, 2031.

Gupta said there is little reason to change the framework now, particularly in the face of frequent external shocks, which justify the existing tolerance band.


If the growth-inflation mix seen over the past decade-robust growth alongside lower inflation-continues, India could consider aligning with other economies, she said at a seminar hosted by National Council of Applied Economic Research (NCAER).

The central bank has projected inflation to average 4.6% in FY27.

Gupta said India is entering a phase of high growth and low inflation, adding that without recent global shocks, growth could have exceeded 8%.

At the same event, Krishna Srinivasan, director of the Asia and Pacific Department at the International Monetary Fund, said India's fiscal policy has remained prudent despite multiple shocks but should gradually allow price signals to function.

"They (India) have some fiscal space to provide support to the economy," he said. "They have cut excise taxes on oil, provided some substitutes for fertilisers. This can continue for some time, but at some point you have to allow price signals to start working."

Srinivasan warned that prolonged global conflicts could heighten inflationary pressures and dampen growth, underscoring the need for agile monetary policy.

Ram Singh, director of Delhi School of Economics, said the oil shock is a terms-of-trade shock for India. Limiting price pass-through may hurt efficiency and fiscal health, though he described earlier restraint on retail price increases as a prudent move, partly driven by political considerations. He added that some impact is already visible in the exchange rate, with more likely to feed into retail prices after elections.

Gupta also said International Monetary Fund projections tend to be conservative, expressing confidence in India's growth resilience.