Reserve Bank of India Deputy Governor Poonam Gupta has strongly defended the central bank's inflation projection methodology, stating there is no systematic bias in the Monetary Policy Committee's forecasts despite recent misses. Speaking at a workshop in Mumbai on Wednesday, Gupta addressed growing market concerns about the accuracy of RBI's economic predictions.
Defending MPC's Forecasting Record
Gupta firmly rejected claims of directional bias in the MPC's projections, revealing that internal analysis confirms the committee's forecasts remain unbiased. The deviation of inflation and growth forecasts does not have any systematic directional bias, she asserted while responding to market criticism. The deputy governor emphasized that inflation forecasting presents significant challenges globally, but is particularly difficult in the Indian context due to the high food weight in the Consumer Price Index and persistent price volatility.
Four-Pronged Approach to Forecasting
Gupta outlined the comprehensive methodology employed by the MPC to generate accurate forecasts. The central bank utilizes a four-pronged approach that combines multiple analytical tools:
- Sophisticated economic models
- Historical trend analysis
- High-frequency indicators monitoring
- Expert judgment and assessment
This multi-faceted framework helps capture economic turning points and emerging risks more effectively. Gupta stressed that monetary policy operates with significant lags, necessitating forward-looking forecasts that extend up to four quarters ahead to guide policy decisions appropriately.
Enhanced Data Reporting Initiatives
The workshop also served as a platform to announce significant improvements in RBI's data dissemination practices. The central bank revealed plans to publish faster and broader economic data in the coming months. Key initiatives include:
Monthly balance of payments numbers will replace the current quarterly reporting, providing more timely insights into India's external sector performance. Additionally, the RBI will expand disclosures on how companies raise funds across both banking and non-banking channels, offering greater transparency in corporate financing patterns.
Gupta acknowledged that forecast errors are inevitable, particularly during economic shocks or when projecting further into the future. The consultative workshop focused on base revision of key economic indicators including the Consumer Price Index, Gross Domestic Product, and Index of Industrial Production, reflecting RBI's commitment to improving measurement accuracy.
The deputy governor's robust defense comes at a crucial time when the central bank faces increasing scrutiny over its inflation management strategies amid global economic uncertainties and domestic price pressures.
