Context:
- RBI Deputy Governor Poonam Gupta clarified that there is no systemic bias in the central bank’s inflation forecasts amid criticism from market analysts.
Key Highlights
- While acknowledging forecast errors, the RBI asserted they are not intentional nor politically influenced.
- CPI data variations arise from:
- Changes in methodology
- Market volatility
- Variable supply shocks (food, oil)
- The comments follow debates questioning whether RBI’s inflation projections led to delayed policy easing.
- CPI inflation in October 2025 stood at 0.25%, marking the slowest rate in months.
Relevant Prelims Points
- Monetary Policy Framework:
- Inflation targeting mandate under RBI Act Amendment, 2016:
- Target: 4% ±2%
- Inflation targeting mandate under RBI Act Amendment, 2016:
- CPI vs WPI:
- CPI used as benchmark for policy decisions.
- Measured by NSO under MoSPI.
- Repo Rate: Primary tool for controlling inflation.
Relevant Mains Points
➡ Forecasting Challenges
- Supply chain disruptions, food price volatility, global oil shocks, and climate-related instability impact inflation trends.
➡ Importance of Transparency in Monetary Policy
- Accurate forward guidance builds market confidence, long-term investment stability, and sustainable growth.
➡ Policy Debate
- Some argue the RBI has been conservative (hawkish) to avoid inflationary risks; others believe policy rate cuts should have come earlier to stimulate growth.
Way Forward
- Improve modelling with real-time economic indicators, AI-based forecasting, and improved agricultural price data systems.
- Strengthen coordination between RBI, government ministries, and statistical bodies.
UPSC Relevance:
GS-III → Monetary policy, inflation control, economic governance
GS-II → Institutional accountability in policy making