No systematic bias in inflation forecasts, errors a global problem: RBI deputy governor Poonam Gupta
MUMBAI: Asserting that there is no systematic bias in the RBI's inflation forecasts, which are set for review now along with base years of GDP and IPP baskets, deputy governor Poonam Gupta said recurring forecast errors were a global phenomenon.
Gupta, who is in charge of the monetary policy department, also said the central bank, which is the repository of all key macro-data from the monetary and fiscal angles, is planning to offer monthly balance of payments data to provide more timely insights into the nation’s external position amidst global trade shifts.
She was addressing a ‘Pre-release consultative workshop on base revision of consumer price index, gross domestic product and the index of industrial production', chaired by Mahendra Dev, the chairman of the economic advisory council to the Prime Minister, along with Saurabh Garg, secretary in the statistics and programme implementation ministry, here on Wednesday.
The central bank is also looking to offer the balance of payments data, which are a key indicator of the country's external position, on a monthly basis, against the present system of sharing them quarterly, Gupta said.
The concerns over inflation forecasting stem from an overestimation of the number, which, critics argue, prevented the RBI from cutting rates further in the past few months. A rate cut would have been helpful for the economy and possibly lessened the impact of the US tariffs, they contended.
Not just inflation forecasts, of late RBI’s growth forecasts are also getting frequently revised. In the past fiscal, the central bank got almost all its GDP forecasts wrong on the downsides, while those on retail inflation went wrong on the upside.
"While minimising the forecast errors is equally important, there is no systematic bias in the forecast. It is not that the forecast is biased in any particular way," Gupta said.
Acknowledging the critical reporting on inflation forecasting, she said it is "fun" to read articles in the media, which are "perhaps not kind", but made it clear that the RBI takes the views very seriously.
Citing her interactions with colleagues in the monetary policy department, she said every estimate has the risk of forecast errors, and there is not a single forecaster who gets it right all the time and went on to term it a "global phenomenon".
“The central bank follows a multifaceted approach to forecast inflation, including deploying proven models, using historical patterns, surveys, and stakeholder consultations, including from ministries and analysts,” Gupta said, adding the upcoming revision of the consumer price inflation (CPI) basket by the ministry will be helpful for the RBI.
Meanwhile, on the plan to release monthly data of the balance of payments, Gupta said the RBI has already reduced the lag, by which the quarterly data is released within 60 days from the earlier 90 days and will also be looking at other improvements.
“The RBI is trying to reduce the lag further, and also looking to have monthly releases, which may not be as granular as the quarterly ones,” she said, choosing not to give a timeline by when it will deliver on the promise.
"We are working on the monthly data release, the rationale is to give better and more data," she said, adding such monthly data will come before the further reduction in the time lag on the quarterly data.
Pointing to the changing dynamics in financial intermediation, where the role played by banks is coming down, Gupta said the flow of financial resources, data capturing movement of funds across banks, non-banks, external commercial borrowings and also foreign investments will be made into a monthly feature from now on.