patra: Time to review monetary policy objectives: RBI Deputy Governor Michael Patra

Reserve Bank of India (RBI) Deputy Governor Michael Patra said on Thursday that monetary policy alone cannot influence economic growth but can only support it by creating enabling factors.

Monetary policy formulation has become more difficult in the current environment due to data lag and frequent revisions, Patra said. “Based on data from one month and three months ago, I will have to assess what inflation and growth will be a year from now,” he said, adding that policy should be forward-looking but data-driven. is old.

The RBI’s rate-setting monetary policy committee (MPC), which will announce its rate decision in the first week of December, pointed out that it will actually depend on October inflation numbers and July-September quarter growth numbers – the latest available data sets.

The next meeting of the MPC is scheduled to be held from December 5 to 7. Patra said that despite the global financial crisis (GFC), global inflation has barely fallen, but things have changed dramatically. “Inflation today is at a level not seen in the last four decades, and does not withstand the tightening of aggressive and front-loaded monetary policy around the world. The existential question is whether the world will permanently move from an environment of low inflation to high inflation. One. It is time to review the objectives of monetary policy,” said Patra. .

Unlike government data, which is almost always revised, the RBI does not have the luxury of revising interest rate moves, he said.

“Another complication to this whole tightrope walk is that all the data from the NSSO (National Sample Survey Office) three months ago is being revised. And sometimes the change is drastic,” he said.

“If NSSO has the right to revise the numbers, if companies can change their earnings numbers, I should be able to change the September interest rate (final policy),” Patra joked while addressing bankers at the SBI Banking and Economic Conclave.

According to him, despite all the difficulties, the monetary policy should be forward-looking. “Monetary policy must be forward-looking because of the lags with which policy rate changes are transmitted across markets and ultimately reflected in lending rates, mortgage rates, and incomes. Therefore, monetary policy can only hope to respond to future inflation, not today’s inflation,” Patra said. .

As deputy governor, Patra, a career central banker, oversees the central bank’s monetary policy function, among others. It is also part of the rate-setting MPC, which has foreign members.

Along with domestic issues, volatility and outdated data, the MPC also has to deal with global shocks such as the war in Ukraine, which has resulted in a spike in oil and food prices in India, Patra said.