No systematic bias in inflation forecasts, asserts RBI dy guv

‘The inflation forecasts of the Reserve Bank of India (RBI) used in the Monetary Policy Committee (MPC) resolution are “unbiased”, and the deviation of inflation and growth forecasts of the MPC during the inflation-targeting regime does not have any systematic directional bias from the real-ised inflation and growth, RBI Deputy Governor Poonam Gupta said on Wednesday.

- ‘SUBRATA PANDA

Speaking at an event in Mumbai, Gupta said: “Besides minimising forecast errors, what is equally important is to ensure that there is no systematic bias in the forecasts. As far as the inflation forecasts used in the MPC resolution are concerned, they are unbiased.”

India’s central bank provides forward-looking inflation as well as gross domestic product (GDP) forecasts.

“monetary policy operates with well-recognised lags in transmission, decisions taken today affect output and inflation over several quarters. For the MPC to fulfil its mandate effectively, it must, therefore, form a view not just of current conditions, but also of where the economy is likely to be in the near term. Therefore, the bimonthly MPC resolution provides forecasts of inflation and growth up to four quarters ahead,” Gupta said.

She also highlighted that any forecasting exercise, by its very nature, has the risk of incurring forecast errors, and such errors are a common feature around the world. “Inflation forecasting is equally challenging in India, if not more so, given the high and outdated weight of food in the CPI basket, and the volatile nature of food prices.”