Critically evaluate the effectiveness of the MPC's inflation-targeting mandate since its statutory establishment in 2016.

Flexible inflation targeting (FIT) was placed on a statutory footing by Section 45ZB of the RBI Act, 1934, empowering a six-member Monetary Policy Committee to set the policy repo rate to achieve a CPI target of 4% within a 2–6% tolerance band [1]. A decade on, the framework has delivered credibility and accountability, but its record against supply shocks remains uneven.

Achievements

• Disinflation and lower volatility: headline CPI averaged 3.9% during October 2016–March 2020, with a marked decline in inflation volatility, against near double-digit levels in the preceding phase [2].
• Rule-based, transparent policymaking: MPC decisions are binding on the Bank, with published resolutions, voting records and minutes — the August 2026 resolution unanimously held the repo rate at 5.25% with a neutral stance [4].
• Statutory accountability: Section 45ZN compelled a special MPC meeting on 3 November 2022 to draft a report to the Government explaining the missed target and remedial action [3].
• Political endorsement of the framework: the Centre retained the 4% ± 2% target on 25 March 2026 for April 2026–March 2031 [1].

Limitations

• Repeated target breaches: average inflation exceeded the 6% upper tolerance for three consecutive quarters in January–September 2022 [3], and CPI is again projected above target at 5.0% for 2026-27, peaking at 5.9% in Q3 [4].
• Limited traction on supply shocks: the MPC itself attributed the 2026 uptick "mostly on account of fuel and food with little signs of generalisation", pressures interest rates cannot address [4].
• Incomplete transmission: pass-through is full and swift in the money market but "less than complete" in bond markets, diluting policy impact [2].
• Growth trade-off: with threshold inflation estimated at 5–6%, an aggressive response to food-driven headline spikes risks avoidable output loss [2].

On balance, FIT has succeeded as an expectation-anchoring and accountability device, though less so as a shock absorber. Deepening transmission, strengthening supply-side and buffer-stock management, and sharpening food-price data would let the retained 2026–31 target deliver price stability alongside durable growth.