Managing inflation: RBI's MPC has faced external challenges since inception

It is important to ensure that headline inflation is aligned with the target, which will further enhance the credibility of the FIT framework

The Reserve Bank of India (RBI) Act, 1934, was amended in 2016 to introduce a flexible inflation targeting (FIT) framework in the country. This was a momentous occasion in the history of India’s monetary policy, as it marked the beginning of monetary policy decisions being made by a six-member monetary policy committee (MPC), consisting of three internal and three external members.

Until then, the governor of the RBI had the sole power to take monetary policy decisions. Although the RBI had constituted a Technical Advisory Committee (TAC) in July 2005, it lacked statutory backing. The MPC was