New CPI narrow for monetary policy: Subbarao

Written by Press Trust of India | Mumbai | Updated: Aug 31 2013, 08:49am hrs
The new series of consumer price index (CPI) is not enough for a robust statistical analysis of of prices, Reserve Bank governor D Subbarao said on Friday.

He also said the new CPI has an excess focus on food prices, which has a 50% weight. House rents, which account for 10%, are also a cause for concern given doubts over the efficacy of the prices, he added.

The new CPI has only 19 data points which is not sufficient for a statistically robust analysis, Subbarao, who demits office on September 5, said while speaking at the Statistics Day conference at RBI headquarters.

Posing the question if there is a case for shifting focus to CPI, Subbarao said even in case of such an eventuality, RBI will not abandon the wholesale price index (WPI) as a tool to monitor producer prices.

My own view is we will not, because analytically we need to develop a series of producer price indices that will help us gauge how price momentum builds up in the economy.

Subbarao said RBI has traditionally focused more on WPI because of the deeper analytical insights it offers. Weve traditionally used WPI because we thought the legacy CPI is not representative enough for the entire population. WPI is more extensively researched by way of its empirical relationship with other variable like output, monetary aggregates and interest rates and presents richer analytical insight, he said, conceding that other central banks use CPI for policy formulation.

Dont donate to trusts where directors hold post: UCBs told

The Reserve Bank on Friday directed the urban co-operative banks (UCBs) to stop giving donations to trusts and institutions where directors or their relatives hold positions or have interests.

...UCBs are, with immediate effect, prohibited from giving donations to Trusts and Institutions, where directors, and/or their relatives hold position or are interested, even within the permissible ceiling of 1 per cent of the published profits of the bank for the previous year, RBI said in a notification.