Michael D. Patra | Photo credit: FRANCIS MASCARENHAS
On Thursday, Reserve Bank Deputy Governor Michael Patra said formulating monetary policy was a difficult task in a volatile environment like the current one, given lagged data inputs, which are also frequently revised. .
Mr Patra said that next week deliberations would begin for the next policy review which would be announced the first week of December and would depend on inflation data for October and growth data for July-September to be released on 30 november.
“Monetary policy has to be forward-looking, and that’s because when the policy rate is changed, it takes a while before it hits lending rates and aggregate demand in the economy. Therefore, we can only target future inflation, not yesterday’s,” Patra said in a speech at the annual SBI conclave.
“Based on the data from a month ago and three months ago, I will have to assess what inflation and growth will be in a year from now,” he added.
Mr Patra, who oversees the important monetary policy function at the central bank, said there were shocks like the war in Ukraine and soaring oil and food prices, which monetary policy must deal with. face after the publication of the dated official report. The data.
Moreover, there is also a risk of frequent revisions, he lamented, pointing out that in India, there are styles of presenting preliminary, partial, revised and final accounts.
“Another complexity of all this tightrope walking is that all the data on this NSSO (National Sample Survey Office) data from 3 months ago is subject to revision. And sometimes the change is drastic” , he noted.
He pointed to a quote from former Fed Chairman Ben Bernanke highlighting the limited options that exist before the central bank in the event of such an outcome and stressed that the situation also applied to India.
“If the NSSO has the right to revise the numbers, if the companies can change the profit numbers, I should also be able to change the September interest rate (latest policy),” Mr Patra said in a burst of laugh.
The RBI has also recently deployed sentiment analysis tools based on artificial intelligence and machine learning, which have yielded some interesting results, he added.
“In the period following the war in Ukraine, sentiment deteriorated among both internal and external members,” Patra said, adding that members typically write longer texts for minutes in downturns. rates.
He also clarified that monetary policy alone cannot influence the growth of an economy, but it can create favorable factors that would support growth.