A day after the finance ministry cast doubt on RBI’s inflation forecasts, Reserve Bank Deputy Governor Viral Acharya today said price rise data pose a challenge and the central bank is “grappling” with it. Acharya also said capacity utilisation in many of the sectors is very low, with a depressing impact on economic activities. Speaking at an event organised by ICRIER here, the deputy governor said data are the challenge one is facing on important parts of inflation that are behaving other than they have historically (in times of instability). “And let me just say we are grappling with that,” he added. As the RBI left the key interest rates unchanged citing concerns on the price situation yesterday, Chief Economic Advisor Arvind Subramanian had said: “Inflation forecast errors by the RBI have been large and systematically one-sided in overstating inflation.”
Acharya further said it is easy to predict in data what’s likely to repeat itself, but you can’t build a model necessarily of things that are completely non-stationary or one-off sort of things. “But then there are times when the data are just non- stationary, and unfortunately at that point, the kind of micro data that I am talking about is really essential to understand on the ground what’s really happening,” he explained. “… it kind of raises challenges because while it is good to attribute everything to one new thing that is happening in the economy, it unfortunately makes the job of research and projections really hard because it could be that there are stationary forces also at work in the data.”
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On economy, Acharya said capacity utilisation in many of the sectors right now is very low. “What should ideally happen is that the weak firms, the weakest of the firms which don’t have net worth, EBITDA, or operating margins should really be getting weeded out of these sectors… It has not taken place. I think it’s through equilibrium effect, it is actually depressing lot of economic activity,” he added.