Context: Addressing a workshop organized by the Ministry of Statistics and Programme Implementation (MoSPI) regarding the new Consumer Price Index (CPI) base revision, RBI Deputy Governor Poonam Gupta clarified the central bank’s position on inflation forecasting and announced key data dissemination reforms.
1. Addressing The ‘Hawkish Bias’ Criticism
- The Issue: Economists and market analysts have recently criticized the Reserve Bank of India (RBI) for overestimating future inflation. They argue this “hawkish” error has prevented necessary interest rate cuts, even as actual inflation plummeted to a historic low of 0.25% in October 2025.
- RBI’s Clarification:
- No Systematic Bias: The Deputy Governor asserted that while forecasting errors are possible (and vital to minimize), there is no systematic bias (consistent over-estimation or under-estimation) in the RBI’s models.
- Methodology: The RBI employs a “variety of approaches and models” for both growth and inflation forecasting, ensuring a balanced view rather than relying on a single metric.
2. Data Dissemination Reforms: Monthly BoP
- Current Status: The Balance of Payments (BoP) data is currently released on a quarterly basis.
- New Initiative: To improve transparency and the frequency of economic indicators, the RBI plans to release BoP data on a monthly basis soon. This will allow for more real-time monitoring of India’s external economic position.
3. Base Revision Context
- The comments were made during consultations for the CPI Base Revision. Regular revisions of the base year are necessary to ensure economic indices accurately reflect current consumption patterns and structural changes in the economy.
- What is ‘Systematic Bias’ in Forecasting?
- It refers to a consistent error in a model where predictions are skewed in one direction (e.g., always predicting higher inflation than what actually occurs). The RBI argues its errors are random/situational, not systematic.
- Balance of Payments (BoP):
- A systematic record of all economic transactions between residents of a country and the rest of the world over a specific period.
- Components:
- Current Account: Trade in goods/services, transfer payments.
- Capital Account: FDI, FII, Loans, NRI deposits.
- Significance of Monthly Data: Allows faster policy intervention in case of currency volatility or trade shocks.
- Agencies Involved:
- CPI Compilation: National Statistical Office (NSO) under MoSPI.
- Inflation Target: Set by the Government of India (in consultation with RBI) but maintained/achieved by the RBI.
- Current Target: 4% (+/- 2%).
