Inflation Management, Monetary Policy & RBI’s Role

India’s price stability is governed by the statutory Flexible Inflation Targeting (FIT) framework under the RBI Act, 1934. The primary objective is to maintain Consumer Price Index (CPI) inflation at 4% with a tolerance band of ±2%, ensuring price stability while supporting growth. This framework serves as the nominal anchor for the economy, coordinating expectations and preserving the purchasing power of the Rupee.

Stakeholders in Price Stability

  • Household Savers: Beneficiaries of positive real interest rates (Deposit rates > Inflation rate).
  • Bond Markets: Investors relying on yield predictability and anchored inflation expectations.
  • Vulnerable Sections: Low-income groups protected from the erosion of real wages ....
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