RBI Sees No Systematic Bias In Inflation Forecasts, Explores Monthly BoP Data Release

Mumbai, Nov 26: RBI Deputy Governor Poonam Gupta stated on Wednesday that the central bank’s inflation forecasts show no systematic bias, despite ongoing discussions among some quarters regarding the current estimation trends.

RBI Justifies Forecasting Strategy

At an event in Mumbai, RBI Deputy Governor Poonam Gupta emphasised that the Reserve Bank of India’s inflation forecasts show no systematic bias. She explained that the RBI relies on a comprehensive framework of models, historical trends, expert consultations, and surveys to arrive at its estimates. Gupta noted that forecasting errors are not unique to India but are a global phenomenon.

“The forecasts are not biased in any specific direction; all forecasting exercises carry inherent risks,” Gupta said. She also acknowledged media criticism, stating that while it may sometimes be harsh, the central bank takes it seriously rather than dismissing it outright.

Recent discussions around inflation forecasting have centred on whether over-estimation may have limited the scope for rate cuts. Some analysts suggest that more aggressive rate cuts could have supported domestic economic growth, though Gupta noted that external factors remain significant in shaping monetary policy decisions.

Monthly BoP Data Under Consideration

Gupta also highlighted the RBI’s efforts to enhance the timeliness and frequency of balance of payments (BoP) data in India. The central bank has already reduced the lag in quarterly BoP releases from 90 days to 60 days.

Looking ahead, the RBI is exploring the possibility of monthly BoP updates. While these would not be as detailed as the quarterly reports, Gupta assured that they would provide faster insights into India’s external position. No specific rollout timeline has been announced, but she noted that monthly updates would be introduced before any further reduction in the quarterly publication lag.

Other Data Enhancements In The Future

Citing changes in global financial intermediation, Gupta stated that the RBI is on the path to ensuring that monthly reporting of the flow of financial resources becomes a common practice. Such data will be used to capture the flow of funds among the banks, non-bank financial institutions, external commercial borrowings, and foreign investments.

The changes in the series of consumer price inflation (CPI), which will be made in the future, will also help, according to Gupta, in the analytical work of the RBI. The observations are made as the world trades keep on changing, making the policymakers of India tighten real-time data systems and enhance trust in the macroeconomic evaluations.

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