The Reserve Bank of India is asking the public a crucial question ahead of 2026: should they change how they control inflation? The answer from top economists might surprise you.
Last month, RBI officials launched a discussion paper seeking feedback on whether the current inflation targeting framework needs tweaking. When I analyzed the responses from 15 leading economists polled by CNBC-TV18, the results revealed strong consensus on some issues and surprising disagreements on others.
How RBI’s Inflation Control Actually Works
Here’s what most people don’t understand about how interest rates connect to your grocery bill. The Reserve Bank sets interest rates based on inflation patterns. When inflation runs at 5% yearly, average savers like you won’t save money unless they get slightly more than 5% returns after one year.
But here’s the kicker – if inflation gets too high, essential items can slip beyond the reach of the poor. So the RBI raises rates, making it expensive for companies and borrowers to get money. As demand falls, prices cool down.
The reverse creates its own problems. If inflation keeps falling, companies won’t invest because by the time they produce products, prices may drop even more, preventing them from recovering their money. What every country needs is inflation that’s just enough to keep the economy growing at its potential – where there’s neither too much excess capacity nor too little capacity.
The 2016 Game Changer
Until 2015, Reserve Bank governors consulted experts and industry groups, then set interest rates depending on growth and inflation data. But in 2016, the Reserve Bank Act was amended to put in a formal inflation target. The RBI was mandated to maintain a Consumer Price Index (CPI) inflation target of 4.0 per cent with a tolerance band of +/- 2 per cent around it – a level that an expert committee found would let the economy grow optimally.
Since a large part of India’s inflation depends on food (vulnerable to weather) and fuel (mostly imported), the RBI got some flexibility. They had to keep inflation at 4% plus or minus 2% – between 2% and 6%. The appropriate rate gets decided by a Monetary Policy Committee comprising three Reserve Bank members and three external members.
The Results Are In – And They’re Impressive
This new flexible inflation targeting system has worked remarkably well. Inflation averaged 4.9% under the regime, compared with 6.8% in the preceding period since the new framework started in 2016. Before the framework came in, average inflation was 6.8%.
The framework requires government to review it every five years. The first review conducted in March 2021, the target was retained for the subsequent five years till March 2026 – basically finding the 4% plus or minus 2% appropriate. The second review comes up in March 2026.
What 15 Top Economists Actually Want
In the run-up to March 2026, the Reserve Bank asked the public to provide feedback on basically four key questions through their discussion paper. Here’s what the CNBC-TV18 poll of 15 top economists revealed:
Question 1: Headline vs Core Inflation
Should RBI target headline CPI inflation or core inflation (excluding food and fuel)? Since food crises are driven by bad weather and aren’t controllable by interest rates, this question matters.
The answer was overwhelming: 90% of those polled said the Reserve Bank should stick to headline inflation. Their reasoning makes perfect sense – a target that excludes food makes no sense to the common man of India. Only one economist said the Reserve Bank should target inflation excluding vegetables.
Question 2: Keep the 4% Target?
Should RBI retain the target at 4%? All economists polled said yes – the target should stay at 4%.
One economist noted that in the West, inflation is higher than their long-term trend of 2%, and that will happen in India too. But even he didn’t want the Reserve Bank to raise the target because that would indicate weak commitment to fighting inflation.
Question 3: The Tolerance Band Debate
Should the Reserve Bank change the band of 4% plus or minus 2%? Here there was some disagreement. 20% of those polled said the range should be narrowed to 3% to 6%. One respondent suggested that a target of 4.5% plus or minus 1.5% would be ideal, but such numbers would confuse people. So he said just change the range to 3% to 6%.
But the remaining 80% said retain it at plus or minus 2%.
Question 4: Point Target vs Range Only
Should RBI abandon the point target altogether (the 4%) and only keep a range? All respondents said no way – there should be a point and a range around it.
The Unanimous Verdict
Beyond the Reserve Bank questions, CNBC-TV18 asked an additional question: do economists believe the inflation targeting system has worked at all? All of them gave a resounding yes – 100%.
The RBI’s analysis suggests trend inflation has hovered around 4% since the framework began in 2016. Going by this poll, looks like the current inflation targeting framework will continue as is.
What This Means for Your Money
The consensus is clear: India’s inflation targeting system isn’t broken, so don’t fix it. The 4% target with a 2% tolerance band has successfully brought inflation down from over 6% to under 5% on average. The domestic headline retail inflation is expected to align with the 4 per cent target on a durable basis in FY26, Reserve Bank of India (RBI) Deputy Governor Michael Debabrata Patra has said.
For savers and investors, this stability matters. When you know the RBI is committed to keeping inflation around 4%, you can make better decisions about fixed deposits, bonds, and other investments. The framework gives predictability that markets crave.
What stands out from this economist survey is the overwhelming support for keeping things simple and effective. Rather than getting fancy with core inflation measures or complex targeting ranges, the experts want the RBI to stick with what works: a clear 4% target that everyone understands, with enough flexibility to handle India’s unique challenges around food and fuel price volatility.
The 2026 review will likely rubber-stamp this consensus, giving India’s monetary policy the continuity it needs to keep inflation in check while supporting economic growth.