UPSC | Prelims GS | 2026

In the context of India's retail inflation framework, which one of the following correctly describes the Reserve Bank of India's inflation target arrangement?

  1. It targets Wholesale Price Index inflation with a tolerance band of 4% to 8%.
  2. It targets Consumer Price Index inflation at 4%, with a tolerance band of plus or minus 2 percentage points.
  3. It targets food inflation alone at 4%, without a tolerance band.
  4. It targets core CPI inflation at 6%, with no upper limit.

Answer

Correct Answer

It targets Consumer Price Index inflation at 4%, with a tolerance band of plus or minus 2 percentage points.

Explanation

Flexible inflation targeting

  • Option B is correct: India's notified target is 4% CPI inflation with a 2%-6% tolerance range.
  • Option A is wrong because the framework uses CPI, not WPI, as its headline measure.
  • Option C is wrong because food inflation is not the MPC's sole target.
  • Option D is wrong because the framework does not target core CPI at 6%.

Topics: cpi and monetary policy committee, indian economy, inflation targeting, monetary policy