Home / News / India /  Monetary policy task challenging given lagged data, frequent reviews: RBI dep guv

Monetary policy has to be forward-looking, Reserve Bank Deputy Governor Michael Patra said on Thursday. In his speech at the annual SBI conclave, Patra stated that preparing monetary policy is a challenging task, especially in a volatile market like the current one where there are lagged data that are also reviewed frequently. The deputy governor oversees the important monetary policy function at RBI.

He said, "Monetary policy has to be forward-looking, and that is because when the policy rate is changed, it takes quite a while before it reaches lending rates and aggregate demand in the economy. Hence, we can only target future inflation, not yesterday's," reported PTI.

Patra revealed that he has to assess what is inflation and growth going to be one year down the line on the basis of one-month-ago and three months ago data.

Talking about the latest scenario, Patra highlighted some shocks such as the Russia-Ukraine war, and surging oil and food prices which the monetary policy has to contend, with after the release of the dated official data.

Also, there is the risk of frequent reviews as well. Patra said, in India, we have preliminary, partial, revised, and final styles of account presentations.

He also pointed out another complexity to this whole tightrope walking -- would be that the data from NSSO (National Sample Survey Office) from 3 months ago are subject to revision. He said, sometimes the change is drastic.

Further, in the conclave, Patra cited former Fed chairman Ben Bernanke's quote which mentioned the limited options that exist before the central bank in the case of such an outcome and stressed that the situation applies to India as well.

Thereby, Patra said that if NSSO has the right to revise figures, if companies can change earnings numbers, "I should also be able to change the interest rate of September (last policy)."

For the December 2022 policy review, Patra revealed the deliberations will start in next week and will have to depend upon inflation data for October and economic growth data for July-September 2022 which is scheduled on November 30.

RBI has been increasing the repo rate since May 2022 to tame multi-year high inflation. Since then, the policy rate has been cumulatively raised by 190 basis points to 5.9%.

Inflation has stayed above RBI's upper tolerance limit for the tenth consecutive month. In October, the consumer price index eased to 6.77% but stays above RBI's limit. Inflation had jumped to a five-month high in September to 7.41%.

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