- The government set the inflation target at 4% for April 2026 to March 2031
- The inflation tolerance band is fixed between 2% and 6% for the same period
- The Finance Ministry issued the notification in consultation with the RBI under RBI Act
The government has retained its medium term inflation target at 4%, according to a notification sent on Wednesday. The upper tolerance level for the period between April 2026 and March 2031 has also been set at 6%.
The lower tolerance level has been set at 2% for the same period.
The notification from the Finance Ministry was issued under RBI Act and was in consultation with the Reserve Bank of India. This also confirms the continuation of flexible inflation targeting framework.
Oil Volatility Raises Inflation Risks
Volatility in crude oil prices driven by the Middle East conflict is raising inflation risks in India and may push the Reserve Bank of India towards a rate hike, even as growth slows, an economist said.
The Reserve Bank of India's Monetary Policy Committee will meet from April 6-8, when policymakers are expected to assess the economic impact of nearly a month of conflict involving the United States, Israel and Iran.
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Crude prices have swung sharply over the past month as tensions disrupted shipping through the Strait of Hormuz, a route that carries about 20% of global oil supply. Prices rose on supply concerns and eased on signs of talks, even as flows remained uncertain.
The oil shock is feeding into inflation through fuel, fertiliser and currency channels, raising the risk that the Reserve Bank of India may need to tighten policy even as demand weakens.
Trinh Nguyen, senior economist covering emerging Asia at Natixis, said prices remain elevated and the impact will depend on how long the disruption lasts. "Brent is very expensive, jet fuel is very expensive," she said. "You have oil prices going crazy."
Nguyen said the impact extends beyond crude to other inputs that affect prices across the economy.
"We're only focusing on the supply shock initially, but eventually we have to talk about what that means in terms of the current account," she said. "More importantly, disruptions such as fertilisers and chemicals are important for the supply chain."
She said currency moves add to imported inflation as the rupee weakens during periods of stress.
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