India Sees Fewer Rate Hikes Under Inflation Targeting Regime: SBI Report

India has seen fewer instances of policy rate increases since the flexible inflation targeting (FIT) framework came into effect, according to a report by State Bank of India (SBI). The framework was introduced in October 2016 to guide monetary policy through an inflation target. 

The report noted that policy rate movements have been relatively limited over this period. There were also two full calendar years 2021 and 2024 when the policy repo rate remained unchanged. 

Earlier Phase Saw More Hikes 

Before the inflation targeting framework was adopted, rate adjustments were more frequent. Between 2010 and 2015, the central bank carried out 16 episodes of rate hikes and 8 instances of rate cuts, according to the report. 

This period saw a higher number of tightening actions compared with the years after the framework was introduced. 

Policy Stance and Rate Decisions 

The report noted that policy rate decisions in India have largely been in line with the monetary policy stance announced by the central bank, with a few exceptions. 

Many of the rate changes took place during periods when the stance was described as neutral. This indicated that the central bank retained the option to move rates in either direction depending on economic conditions. 

Inflation Target and Tolerance Band 

Under the current flexible inflation targeting framework, the Consumer Price Index (CPI) inflation target is set at 4%. The system also allows a tolerance band with an upper limit of 6% and a lower limit of 2%. 

The framework was formally adopted through an agreement between the Government of India and the Reserve Bank of India (RBI). 

Review of the Framework 

The inflation targeting framework is reviewed every 5 years. The first review was conducted in March 2021, covering the period until March 2026. 

A second review is expected by the end of March 2026, after which the next phase will begin from April 1, 2026. The next monetary policy meeting scheduled for April 6-8, 2026, will be the first policy review in that phase. 

Discussion on Future Design 

In August last year, the RBI released a discussion paper seeking feedback on the structure of the monetary policy framework. The paper asked for views on whether headline inflation or core inflation should guide policy decisions. 

It also sought feedback on whether the 4% inflation target should continue, whether the 2-6% tolerance band should be revised, and whether the framework should move to a range instead of a fixed target. 

Read More: India Clarifies Foreign Investment Scrutiny Threshold Under Revised Press Note 3 Framework! 

Conclusion  

With the framework’s review due in March 2026, the next phase will begin in April. The structure of the regime for the coming years remains to be finalised. 

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