Does the RBI’s MPC have an upside bias to its inflation forecasts?
Forecasting is a mug’s game, having a fair bit of soothsaying about it. This is especially true when it comes to the Indian economy, which is very large, very diverse and complex.
It’s no wonder then that the Reserve Bank of India’s forecasts about inflation in the last one year or so have been wrong. What is interesting, though, is that the actual inflation numbers have invariably undershot their predictions. All the RBI inflation forecasts since April 2017 have been consistently higher than actuals.
That suggests the RBI monetary policy committee (MPC) has an upside bias in its inflation forecasts. The chart alongside tells the story.
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