The government on Wednesday extended the mandate for the Reserve Bank of India (RBI) to maintain retail inflation at 4 per cent, with a tolerance band of 2 percentage points on either side, for another five years ending March 31, 2031.The move continues the flexible inflation-targeting framework first introduced in 2016 and retained once earlier in March 2021.“The central government, in consultation with the Reserve Bank, hereby notifies the inflation target for the period beginning April 1, 2026, and ending on March 31, 2031,” a gazette notification issued by the Department of Economic Affairs dated March 25 said, quoted PTI.According to the notification, the inflation target remains at 4 per cent, with an upper tolerance level of 6 per cent and a lower tolerance level of 2 per cent.India formally adopted the inflation-targeting regime in 2016, when the six-member Monetary Policy Committee (MPC), headed by the RBI governor, was tasked with keeping annual retail inflation aligned to the 4 per cent target until March 31, 2021. The framework was subsequently extended for another five-year period in 2021.Over the past decade, retail inflation has remained within the prescribed band for nearly three-quarters of the time, although volatility increased during the pandemic years.The latest official data showed retail inflation rising to 3.21 per cent in February from 2.74 per cent in the previous month. The Consumer Price Index (CPI) released earlier this month is based on a new series with base year 2024.Against the backdrop of the upcoming review effective from April 1, 2026 and evolving global and domestic economic conditions, the RBI had undertaken an assessment of the nature and format of the inflation target.In August 2025, the central bank issued a discussion paper seeking stakeholder feedback on several issues, including whether headline inflation or core inflation should guide monetary policy, whether the 4 per cent target remains optimal for balancing growth and stability, and whether the tolerance band around the target requires revision.The paper also explored whether the target level should be replaced with a range-based framework while maintaining flexibility and policy credibility.It noted that inflation performance during the nine years of flexible inflation targeting showed a “hump-shaped” trajectory. The first three years and the most recent three years broadly aligned with the target, while the intervening period saw inflation trends move closer to the upper tolerance band amid disruptions such as the Covid-19 pandemic and the Russia-Ukraine conflict.“The experience of the FIT framework, introduced in 2016 and first reviewed in 2021, has broadly performed well. From the inception of FIT till about the end of 2019, inflation was low and stable, averaging around 4 per cent,” the RBI paper said.It emphasised that monetary policy frameworks require both certainty and credibility, particularly in an environment marked by heightened global uncertainty, and suggested that the existing framework’s built-in flexibility should be used to steer macroeconomic outcomes.Globally, inflation targeting has become the most widely adopted monetary policy framework since New Zealand first introduced it in 1990. The RBI paper noted that average inflation in India has moderated to around 4.9 per cent since the adoption of flexible inflation targeting, compared with an average of 6.8 per cent in the pre-framework period under the current data series.