The Indian government and central bank have agreed to retain the bank’s inflation target of 2%-6% for the next five years, a finance ministry official said.
The monetary policy framework, signed by Prime Minister Narendra Modi’s government with the Reserve Bank of India in 2015, set up a monetary policy committee with a mandate to achieve 2%-6% headline retail inflation.
The target will be kept until March 2026, Tarun Bajaj, economic affairs secretary at the ministry of finance told reporters at a virtual briefing.
India’s retail inflation, which touched double-digits under the previous Congress party-led government, has generally fallen, helping Modi to win a second term in 2019.
However, analysts say high commodity prices could fan inflation in the coming months.
India’s retail inflation accelerated to 5.03% year-on-year, a three-month high, in February on higher fuel prices.
After cutting the repo rate by 115 basis points to sustain the economy during the coronavirus crisis, the central bank has kept the policy rate unchanged since May 2020.
India’s economy is projected to contract 8% in the current financial year ending in March, before growing around 11% next financial year.
The Reserve Bank of India’s Monetary Policy Committee (MPC) is expected to keep the benchmark repo rate at 4% at its next meeting from April 5-7.