India Inflation Target Remains Unchanged

India Inflation Target Remains Unchanged by Emily Clark last updated on November 15, 2023

India's Inflation Target Remains Unchanged At 4%

MPC (Monetary Policy Committee) of India has decided to keep the target for retail inflation unchanged at 4%. According to one expert, the comfort zone for the central bank is inflation between the 2% to 6% zone.

The experts also added that trying to slow down inflation doesn't automatically mean that the interest rates will remain at a higher level for extended periods of time.

Inflation Trend Shows Downward Trajectory

In the last 12 months, the inflation stayed above the upper limit of 6% for a total of 5 times. However, the other seven months saw the inflation between the 4 - 6% range. During September, the inflation in India touched 5%, mainly due to a spike in food prices.

A few months ago, the MPC's main focus was to ensure that the inflation is brought down to the 2 - 6% zone and that goal is finally achieved. Now, the focus has shifted to further reducing the inflation so that it reaches the lower end of the band.

The Central Bank of India used higher interest rates along with several other tools to curb inflation in the country. Now, the main focus is to bring down the inflation (annual) to around 4%.

The Central Bank of India held a meeting this month to decide its interest rate policy. After the meeting, the members decided not to change the interest rate but did mention that it remains committed to achieving a 4% target for inflation.

Although the core inflation has delivered a few shocks in the last few months, the overall trend signals a softening of the inflation.

According to analysts, a real interest rate of 1% in India will ensure that inflation continues to drive down sustainably. Once the inflation target is achieved, the repo rate (nominal) in India will also decline along with the real interest rate.

Keeping all of this in consideration, everything will depend on how the inflation situation evolves along with the target set by the Central Bank.