The curious case of RBI's inflation projections

Summary: The MPC meet just went by, and as expected, RBI kept the repo rate unchanged. Most media coverage touted it as a measured, calibrated move. But we came across a LinkedIn post that pointed out something curious – if not downright bizarre – in RBI’s inflation forecasts.

Every few months, the Reserve Bank of India’s Monetary Policy Committee (MPC) meets and the script kicks in. Press releases fly, news anchors scramble, economists nod thoughtfully. But for most of us, life goes on. The EMI doesn’t change overnight, tomatoes still cost a fortune, and the official jargon? It usually sounds more or less the same.

But once in a while, someone looks closely and spots something odd.

Sridhar Sivaram (Investment Director at Enam Holdings) did just that in a LinkedIn post that’s quietly doing the rounds. He pointed out something strange in the RBI’s inflation forecasts.

In a recent post, Sivaram questions the very core of the RBI’s forward guidance. And no, it’s not just armchair criticism. He backs it up with data that might make the central bank’s inflation forecasters squirm in their cubicles.

Let’s start with a simple story of moving targets

In April 2025, the RBI projected Q2 inflation (July–Sept) at 3.9 per cent.
By June, they revised it down to 3.4 per cent.
Now, in August, the projection has plummeted to 2.1 per cent.

That’s an 180-basis point slide in a matter of months.

As Sivaram puts it, “RBI policies are supposed to be forward-looking. But if you're this wrong just one quarter ahead, what exactly are you looking at?”

And he doesn’t stop at Q2. His real worry is what comes next.

The Great Q3 Illusion

To hit the RBI's Q3 target of 3.1 per cent, month-on-month inflation would need to be around 85 basis points – which, annualised, is north of 10 per cent inflation.

Pause and let that sink in.

That’s in a country where the three-year average is just 19 bps, and the five-year average is 40 bps. "We’d need a black swan event to make that happen,” Sivaram says.

Not impossible, but pretty darn unlikely – unless tomatoes plan another rebellion.

And then comes Q4 – cue the plot twist.

Assuming (miraculously) that Q3 hits the mark, to reach the RBI’s Q4 target of 4.4 per cent, we’d now need 70 bps deflation for three months straight.

That’s not just another black swan event. That’s a flock of them landing on Mint Street.

As Sivaram wryly puts it: “Looks like something seriously wrong with RBI’s Data Team.”

Meanwhile, in PR Wonderland...

Compare this sharp-eyed scepticism with the typical post-MPC headlines. The language stays safe. Terms like “calibrated approach,” “neutral stance,” and “resilient economy” make their way into nearly every release.

“The RBI’s decision to maintain the repo rate at 5.5% and continuation of maintaining a neutral stance is a well calibrated approach… Projections of CPI inflation averaging 3.1% for FY26... reaffirm the resilience of the Indian economy…”

There’s nothing wrong with optimism. But when the projections behind that optimism are built on questionable math, it’s only fair to ask a few tough.

So what’s going on?

Let’s be fair. Forecasting inflation in a complex economy like India is no easy job. One month it’s onions, next month it’s crude oil, then the Fed throws a tantrum, and before you know it, the CPI graph looks like a cardiogram. But a miss of 200 bps – quarter-on-quarter – isn’t just weather variability. It’s a forecasting credibility issue.

And if you want to see it for yourself, Sivaram even shared the projection table from April 2025 to March 2026, showing how month-on-month changes swing wildly from +1.0 per cent in July to -0.70 per cent in January, February, and March. It’s a rollercoaster with no seatbelts.

But what does this mean for investors?

Probably not much. And that’s the point.

MPC announcements come and go. Forecasts are made, revised, and re-revised. Meanwhile, your SIPs continue, your goals stay the same, and unless something truly extraordinary happens – like a financial crisis or a global commodity shock – most of these projections have little bearing on your day-to-day financial life.

Sivaram’s post reminds us why independent voices are so crucial in the financial world. When everyone else is applauding the maestro, someone has to point out when the orchestra’s playing off-key.

And if the RBI's inflation team gets it right after all? Well, let’s just say they should switch careers to astrology – because that level of forecasting would be pure magic.

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Also read: In uncertain times, focus on the certainties