India likely to retain 4% inflation target for its central bank

RBI

India is likely to retain the existing inflation target for the central bank, with the setup seen as effective in managing prices, according to people familiar with the matter.

The Reserve Bank of India currently aims to keep inflation anchored around 4%, the mid-point of a 2%-6% range mandated by the government. The target for the central bank is set every five years and is due in March.

The government is unlikely to change the target, finance ministry officials in New Delhi said, asking not to be identified as the discussions are still private. The Ministry of Finance did not immediately respond to request for comment.

In place since 2016, the inflation targeting framework has helped contain price volatility, including during supply shocks triggered by geopolitical events.

India’s inflation rate picked up in November from a record low in the previous month but stayed well below the central bank’s 4% target.

The government has also sought the central bank’s feedback, which has favored maintaining the status quo following internal deliberations and consultations with stakeholders, the people said.

The target guides the central bank’s interest-rate decisions, helping keep price pressures within the band and anchored around the mid-point over the medium term.