MC Analysis: Inflation stayed at 4% in just 13 of 102 months since MPC's inception

Inflation has remained within RBI target of 4% only 13 percent of time in last 102 months

The Reserve Bank of India, on February 7, delivered its first rate cut in nearly five years, as it projected inflation to decline to 4.2 percent in the coming fiscal and growth to inch up to 6.7 percent.

“These growth-inflation dynamics open up policy space for the MPC to support growth, while remaining focused on aligning inflation with the target. Accordingly, the MPC unanimously voted to reduce the policy repo rate by 25 basis points to 6.25 per cent,” the MPC statement noted.

While the Reserve Bank has projected inflation to fall to 4.2 percent in FY26, with inflation set to decline to 4 percent by Q2FY26, 3.8 percent in Q3FY26 and then rise to 4.2 percent, a Moneycontrol analysis shows that inflation has rarely settled around the RBI target of 4 percent over the last nine years that MPC has been in operation.

In fact, of the 102 months since MPC was announced in July 2016, inflation has been around 4 percent target (0.3 percent above or below) only 13 times and never for more than two months in a go.

FY26 may mark the first time when inflation stays within the RBI band for a prolonged period.

More highs than lows

In fact, analysis shows that inflation has stayed below 4 percent in only a quarter of the last 102 months.

The longest stint for inflation hovering below the 4 percent mark was for the 13 months between August 2018 and August 2019, when consumer inflation remained below 4 percent and 12 months between November 2016 and October 2017 when prices had dipped below 2 percent as well.

In most of the periods, inflation has stayed above the 4 percent target.

Covid impact

In the 57 months since Covid first hit India, prices have gone below 4 percent only twice in 57 months.

They were around 4 percent mark in five months, but hovered above 5 percent for 42 of 57 months.