Reserve Bank of India deputy governor Michael Patra on Thursday said formulating the monetary policy is a challenging task in a volatile environment like the current one, given lagged data inputs that are revised as well.
With deliberations for the December policy set to start from the next week, Patra said the policymakers will have to be dependent on inflation data of October and growth data of September-end that will come out in November.
“At any point of time, the goal variables of inflation and growth are not visible to the monetary policy maker. My inflation data is at least one month old. Today, I know about inflation in October and we are just about to start preparation for the December monetary policy,” he said at the State Bank of India’s Banking and Economics Conclave 2022.
“On the basis of one-month-ago and three-month-ago data, I need to try to assess what inflation would be one year from today. What growth would be one year from today,” Patra said.
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This, even as inflation data released by the National Statistics Office are likely be impacted by various macroeconomic events. In such a scenario, a monetary policy maker utilises a plethora of information to make a forecast. “If the National Statistics Office has the right to revise figures, if companies can change their earnings numbers, I should be allowed to change the interest rate in September (last policy),” Patra said in jest.
During his speech, he highlighted the challenges faced by monetary policy makers while making a forecast on the basis of historical economic data.
His comments come when RBI’s will write a letter to government explaining why it could not achieve the inflation target for three straight quarters. Currently, the inflation target is 4%, with a 2 percentage-point threshold in either direction.
On a lighter note, he said that monetary policy makers across the globe need to have a sense of humour to stay sane. “Much of what goes into the monetary policy decision evolves from the deliberations that monetary policy makers have with each other, with the public, and feedback from all these sources. All these processes inherently imbue the lighter side of life,” he said.
“Humour in monetary policy making reflects a serious concern about the economy rather than any lack of concern or any sense of complacency.”
