Skip to content
Free updates Login
SSCBankingUPSC & State PSCNABARD / RBI

RBI Discussion Paper Reviews Flexible Inflation Targeting

22 August 20251 min read
ECONOMYRBI DiscussionPaper ReviewsFlexible InflationTargeting22 August 2025safalsetu.com

Why in the news

The RBI issued a discussion paper reviewing Flexible Inflation Targeting (FIT), asking if the 4% target still balances growth and price stability.

Key facts

  • FIT: introduced 2016, first review 2021; target 4% CPI with ±2% band.
  • Headline CPI includes food and energy; core excludes them.
  • Goals: price stability, growth support, credibility, anchored expectations.

Questions raised

  1. Headline or core inflation for policy?
  2. Is 4% still ideal?
  3. Narrow, widen or remove the band?
  4. A range instead of a fixed target?

Headline versus core

BasisCase
HeadlineReflects overall prices, avoids un-anchored expectations
CoreRemoves volatile food and fuel; shows demand pressure rates can control

Concerns and significance

  • Food is 46% of the CPI basket, hurting low-income households; a base revision may trim it.
  • FIT steers repo rate decisions, liquidity and forecasts, and affects spending, investment and credit.

Exam angle

  • Target and band: 4% ± 2%; food weight: 46%.

Test yourself

1. What is the tolerance band around India's 4% CPI inflation target under FIT?

The framework allows a ±2% band, i.e. 2%-6%.

2. In which year was India's Flexible Inflation Targeting framework introduced, per the RBI paper notes?

FIT was introduced in 2016 and first reviewed in 2021.

3. Food accounts for what share of the CPI basket, as per the RBI discussion paper notes?

The notes state food is 46% of the CPI basket.

This topic is part of Daily Current Affairs 22 August 2025 (15 topics).

All topics of the dayDay quizAugust 2025

Read more