Inflation Targeting and Its Impact on Price Stability: Insights from India

Abstract

Inflation targeting is a strategy used by central banks to promote price stability. Thus implementing the flexible inflation-targeting framework (FITF) in 2016, the Reserve Bank of India (RBI) has aimed to maintain inflation within a designated band of ±2%, focusing on the Consumer Price Index (CPI). This paper assesses the RBI’s approach to FITF, examining its effectiveness in stabilizing prices and its broader implications for the Indian economy. It explores the trade-offs between managing inflation and fostering economic growth, paying special attention to factors like food and core inflation, as well as challenges from external economic shocks.