Monetary policy review: RBI changes the way it forecasts inflation rate

The amendments come just days after the RBI won approval from the government to retain its 2-6 per cent inflation target range for the next five years

The central bank said it has revised its inflation-forecasting model to better capture how fiscal and monetary policy interact with real-economy elements.
 
The adjustments incorporate fiscal-monetary dynamics, India’s unique and often chaotic fuel pricing regime, and exchange-rate fluctuations and their impact on balance of payments, the Reserve Bank of India said in its latest bi-annual monetary policy report published Wednesday.
 
Dubbed as the Quarterly Projection Model 2.0, the RBI’s economists describe the framework as a forward-looking, open economy, calibrated, new-Keynesian gap model. The previous version had often been criticised for over-estimating upside risks to inflation.
 
The amendments