Chapter IIIF — Monetary Policy

Section 45ZN: Failure to maintain inflation target

Reviewed by CA Nikhil Gupta · Last reviewed 18 September 2026

Section 45ZN defines when RBI is deemed to have failed to maintain the inflation target and requires RBI to report to the Central Government on reasons, remedial actions and the estimated time for return to target.

Operative provisionOfficial sources mappedProvision-specific decode

Finin2min - Section 45ZN in 2 minutes

Legal effectSection 45ZN defines when RBI is deemed to have failed to maintain the inflation target and requires RBI to report to the Central Government on reasons, remedial actions and the estimated time for return to target.

Operative ruleUnder the current framework, failure is linked to average inflation being above the upper tolerance level or below the lower tolerance level for three consecutive quarters; a single month outside 2%-6% does not by itself trigger Section 45ZN.

Connected lawRead the statutory test with the current 2026-2031 target notification and the rules prescribing the report/accountability process.

File evidenceFor monitoring, calculate quarterly averages consistently from CPI Combined, track consecutive quarters and preserve the target notification and data source.

Statutory structure and clause / subsection decode

This map separates the operative limbs of this provision so thresholds, powers, conditions and exceptions are not collapsed into a single summary.

Trigger

Section 45ZN requires RBI to report to Central Government when the statutory inflation target is failed.

Report content

Reasons for failure, proposed remedial action and estimated time to return to target.

Failure test

The Act leaves the factors constituting failure to a separate Central Government Gazette notification. Do not substitute the five-year target notification for the failure-factor notification.

Current target

For 1 April 2026 to 31 March 2031, S.O. 1580(E) dated 25 March 2026 specifies a 4% target with 6% upper and 2% lower tolerance levels.

Worked practical example

Facts. If CPI is 6.3% in one month but the quarterly average does not breach the band for three consecutive quarters, describing the event as statutory 'failure' under Section 45ZN would be wrong.

Compliance points and common mistakes

Do not decide the issue from the heading alone. Map the facts to the operative words of Section 45ZN and to each relevant subsection, clause, proviso or explanation shown above.
Keep the statutory question separate from the operational overlay. Read the statutory test with the current 2026-2031 target notification and the rules prescribing the report/accountability process.
Do not convert an exception, exemption or discretionary RBI/Government power into an automatic entitlement. Record the authority, conditions and effective date.
Where the provision is historical, omitted or repealed, state that status prominently and do not present it as a current compliance obligation.

Connected provisions and instruments

RBI Monetary Policy Committee and Monetary Policy Process Regulations, 2016Operating regulations for MPC process, including scheduling, notice and process.Inflation Target Notification, 2026–2031S.O. 1580(E), 25 March 2026: 4% CPI target with 6% upper and 2% lower tolerance for 1 April 2026–31 March 2031.

Questions and answers

What is the purpose of Section 45ZN?

Failure to maintain inflation target: Section 45ZN defines when RBI is deemed to have failed to maintain the inflation target and requires RBI to report to the Central Government on reasons, remedial actions and the estimated time for return to target.

Which statutory limb should be checked first?

Trigger - Section 45ZN requires RBI to report to Central Government when the statutory inflation target is failed.

What is the next legal boundary?

Report content - Reasons for failure, proposed remedial action and estimated time to return to target.

What record should support the conclusion?

Section 45ZN file evidence: For monitoring, calculate quarterly averages consistently from CPI Combined, track consecutive quarters and preserve the target notification and data source.

Primary sources

Source control for Section 45ZN: use the official consolidated RBI Act for the statutory text and footnotes, then separately reconcile any post-Finance Act 2022 amendment, commencement notification or RBI instrument relevant to the event date.