The Budget Speech for 2016-17 announced a statutory framework for a Monetary Policy Committee, and the Finance Act, 2016 amended the RBI Act to make price stability, while keeping growth in mind, the primary objective of monetary policy. The MPC provisions came into force on 27 June 2016. On 5 August 2016 the Central Government, in consultation with the RBI, notified an inflation target of 4 per cent CPI inflation, with tolerance limits of 2 and 6 per cent, up to 31 March 2021. The first MPC was constituted on 29 September 2016.
Monetary Policy & Inflation
Monetary Policy & Inflation
Since 2016 India has run a flexible inflation targeting framework. The Finance Act, 2016 amended the RBI Act to make price stability, while keeping growth in mind, the primary objective of monetary policy, and to create a six-member Monetary Policy Committee that sets the repo rate. On 5 August 2016 the Central Government notified a target of 4 per cent CPI inflation with a band of 2 to 6 per cent; the target was retained on 31 March 2021 for April 2021 to March 2026, and on 25 March 2026 for April 2026 to March 2031. Average CPI inflation was 6.7 per cent in 2022-23, 5.4 per cent in 2023-24 and 4.6 per cent in 2024-25. The counter shows average annual CPI inflation.
5.25%
Policy repo rate (5 Aug 2026)
4.6%
Average CPI inflation (2024-25)
125 bps
Cumulative repo rate cut since Feb 2025 (Aug 2026)
Average annual CPI inflation (%)
| Year | Average CPI inflation |
|---|---|
| 2023 | 6.65 % |
| 2024 | 5.36 % |
| 2025 | 4.63 % |
2023
0.00%
Average CPI inflation
20232025
Since 2023
Reduced
−2.02 %
2023
6.65 %
2025
4.63 %
Why it matters Inflation decides how far a household's income, pension or savings go. A known target gives the RBI a clear yardstick, and the repo rate it sets feeds through to the interest rates people pay on home, vehicle and business loans.
- Amended RBI Act provisions on the Monetary Policy Committee brought into force on 27 June 2016; first MPC constituted on 29 September 2016
- Inflation target: 4 per cent CPI, upper tolerance 6 per cent, lower 2 per cent (notified 5 August 2016; retained 31 March 2021 for April 2021 – March 2026 and 25 March 2026 for April 2026 – March 2031)
- Repo rate raised by 250 basis points, from 4 per cent to 6.5 per cent, between May 2022 and February 2023, and held at 6.5 per cent through January 2025
- Repo rate cut by a cumulative 125 basis points from February 2025, and held at 5.25 per cent in April, June and August 2026
- CPI inflation averaged 1.7 per cent in April–December 2025; it fell to 0.3 per cent in October 2025, the lowest in the 2012-base series
- MoSPI released the first CPI on the new base year 2024=100 on 12 February 2026, with inflation of 2.75 per cent for January 2026
History
Notable milestone
In its first review, on 31 March 2021, the Central Government retained the target and band for April 2021 to March 2026; in its second review, on 25 March 2026, it retained them for April 2026 to March 2031. After inflation rose in 2022, the MPC raised the repo rate by 250 basis points, from 4 to 6.5 per cent, between May 2022 and February 2023. Average CPI inflation then eased from 6.7 per cent in 2022-23 to 4.6 per cent in 2024-25, which the Ministry of Finance described as the lowest since 2018-19.
How it works
Under Section 45ZA of the RBI Act, the Central Government sets the CPI inflation target once every five years in consultation with the RBI. The six-member MPC, three from the RBI including the Governor as chair and three appointed by the government, sets the repo rate at which the RBI lends to banks. If average inflation stays above 6 per cent or below 2 per cent for three consecutive quarters, the RBI must report to the government the reasons, the remedial action and the time needed to return to target.
Outlook
Inflation averaged 1.7 per cent in April–December 2025, and the MPC cut the repo rate by a cumulative 125 basis points from February 2025 to 5.25 per cent. MoSPI moved the CPI to a new 2024=100 base from the January 2026 release. In August 2026 the RBI reported that CPI inflation had risen to 4.4 per cent in June 2026 after 16 consecutive months below target, and the MPC kept the repo rate unchanged at 5.25 per cent.
By the numbers
4 per cent CPI target with a 2–6 per cent band (5 August 2016; retained 31 March 2021 and 25 March 2026). Average CPI inflation 6.65% (2022-23), 5.36% (2023-24), 4.63% (2024-25). Repo rate 4 → 6.5 per cent (May 2022 – February 2023); 5.25 per cent after a cumulative 125 basis point cut from February 2025 (August 2026). Sources: Ministry of Finance via PIB; Economic Survey 2025-26; Reserve Bank of India; MoSPI via PIB.
Data current to: Inflation 2022-23 to 2024-25; repo rate as on 5 August 2026
Source: Economic Survey 2025-26 (Ministry of Finance), Chart V.6 — average annual headline CPI inflation by financial year, 2022-23 to 2024-25, from MoSPI data; the Survey's 2025-26 figure covers only April–December and is not charted. No official annual averages for earlier years were found in a readable file. The headline is the inflation target notified by the Central Government on 5 August 2016, per the Ministry of Finance release published by PIB (linked), and retained on 31 March 2021 for April 2021 to March 2026 and on 25 March 2026 for April 2026 to March 2031, per the RBI. · link