Advertisement
Tuesday, Sep 28, 2021
Outlook.com
Outlook.com

Assess whether MPC failed after 4 quarters of divergence rather than 3 quarter-time period: RBI report

Assess whether MPC failed after 4 quarters of divergence rather than 3 quarter-time period: RBI report
outlookindia.com
1970-01-01T05:30:00+0530
(Eds: Changing slug)

Mumbai, Feb 26 (PTI) The time span considered to gauge whether the monetary policy-setting panel has failed in achieving its objectives should be four quarters instead of the current three-quarter time period, a report by RBI officials recommended on Friday.

The central bank made it clear that the report does not represent the institutional view on the issue.

The report also recommended staggered terms for members in the six-member Monetary Policy Committee (MPC) to moderate political influence rather than the fixed term for which appointments are made at present.

The recommendations made in the Report on Currency and Finance (RCF) come after a period where the inflation target consistently overshot the upper-end of the 6 per cent headline inflation target for multiple months.

Except for a lack of appropriate field visits for arriving at the data during the lockdown, the MPC would have had to do some explaining in this regard, according to experts.

The definition for the failure of the MPC needs to be revised from the present three-quarter horizon, the report said citing experiences from the world over.

"Failure may be redefined as inflation overshooting/ undershooting the upper and lower tolerance bands around the target for four consecutive quarters," the report said.

For many central banks, especially in emerging markets which often face food and fuel price spikes and have a high share of food and fuel in the CPI (Consumer Price Index) basket, failure is also conditional on inflation exceeding the tolerance threshold over a specified duration of time rather than immediately, it said.

Often the occurrence of a series of transitory food price shocks in a sequential manner caused food price spikes to take time to revert, it said, citing an example of the period between October 2017-June 2018.

As per the report, there is a need for greater flexibility for monetary policy and the MPC to see through sharp movements in food prices brought about by transient factors while at the same time be cognizant of relative price shocks that have a bearing on the core inflation trajectory.

"A definition of failure that balances these two objectives would help prevent volatility in output growth brought about by policy responses to frequent food price spikes," it added.

The report said that till March 2020, there was no failure of the MPC as per the three-quarter definition.

It also recommended a "shut period", where members do not speak publicly, should start three days prior to a policy announcement and extend to seven days after the announcement, saying it will aid in clear and effective communication of the monetary policy decisions by the Governor.

The RBI can also look at making transcripts of the MPC''s deliberations public after a period of over five years, it said, stating that at present such documents are not maintained internally as well.

A model communication policy document for the MPC should also be prepared that lays out the dos and don''ts of communication policy, the report said. PTI AA RAM


Disclaimer :- This story has not been edited by Outlook staff and is auto-generated from news agency feeds. Source: PTI

More from Website

Ayushmann Khurrana-Themed Baby Shower Goes Viral Online; Actor Calls It “Cute”

Ayushmann Khurrana-Themed Baby Shower Goes Viral Online; Actor Calls It “Cute”

Actor Ayushmann Khurrana was pleasantly surprised when he saw some pictures and videos from a baby shower going viral, which had him as the theme for the party.

European Super League: UEFA Requests Removal Of Spanish Judge From Case

European Super League: UEFA Requests Removal Of Spanish Judge From Case

The move could eventually lead to disciplinary action restarting against the rebel clubs after it was abandoned on Monday night.

Abhay Deol Makes His Relationship With Shilo Shiv Suleman Insta Official?

Abhay Deol Makes His Relationship With Shilo Shiv Suleman Insta Official?

Actor Abhay Deol just took to social media to make his relationship with Shilo Shiv Suleman Insta official. This has left his fans heartbroken. Here’s all you need to know about Suleman.

More from Outlook Magazine

Out Of Tune: Indie Musicians Seek Protection From Heckling And Abuse At Gigs

Out Of Tune: Indie Musicians Seek Protection From Heckling And Abuse At Gigs

Performers’ safety can only be ensured through street cred and holding organisers accountable.

Smoke And Mirrors: Smog Towers To Clean Up Dirty Air Is A Polluted Idea

Smoke And Mirrors: Smog Towers To Clean Up Dirty Air Is A Polluted Idea

The concept of vacuuming air in the open is not a practical solution to combat air pollution.

Sentry Duty On High Seas: Any Move To Contain China Is Welcome

Sentry Duty On High Seas: Any Move To Contain China Is Welcome

China, Afghanistan and the Quad are the pressing issues that form the backdrop of PM Modi’s first in-person meeting with Joe Biden

Advertisement

Outlook Newsletters

Advertisement