Source: BS
Context:
RBI Deputy Governor Poonam Gupta clarified that the Reserve Bank of India’s (RBI) inflation forecasts, used in the Monetary Policy Committee (MPC) resolutions, are unbiased. She emphasized that forecast errors are natural, but there is no systematic directional bias in predicting inflation or GDP growth.
Inflation Forecasting Framework
- MPC provides forward-looking forecasts of inflation and GDP up to four quarters ahead
- Forecasting considers:
- Current conditions
- Near-term economic trajectory
- Policy transmission lags
- Forecast errors are common globally and unavoidable
- India faces unique challenges:
- High weight of food in CPI basket
- Volatile food prices affecting short-term inflation
Multifaceted Approach to Forecasting
RBI uses a suite of models and approaches:
- Structural and time-series models
- Benchmark indicator and dynamic factor models
- Historical data analysis to capture momentum and base effects
- High-frequency indicators and surveys for real-time demand-supply dynamics
- Expert consultation to assess turning points, structural breaks, and emerging risks
- Continuous improvement through state-of-the-art modeling and stakeholder feedback
Growth Projections
- RBI employs a balanced synthesis of:
- Econometric analysis
- Contemporary economic conditions
- Forward-looking sectoral perspectives
- Projections are derived from multiple models, avoiding reliance on a single approach
Balance of Payments (BoP) Data Updates
- RBI plans to release monthly BoP statistics, currently quarterly
- Purpose: track external position, inflows, and outflows of foreign currency
- Implementation measures:
- Streamlined reporting from entities
- Reduced quarterly release lag: 90 days → 60 days starting Q1 FY26
- Monthly BoP expected ~40 days lag, at slightly aggregated level
