RBI urges steps to curb in­fla­tion

The Pak Banker - - Front Page -

MUM­BAI

Mr Deepak Mohanty, Ex­ec­u­tive Di­rec­tor of the Re­serve Bank of In­dia ad­dress­ing at the S P Jain In­sti­tute of Man­age­ment & Re­search said each pos­sesses within him­self two an­tag­o­nis­tic and fool­ish coun­sel­lors, whom we call by the names of plea­sure and pain…be­sides th­ese two, each man pos­sesses opin­ions about the fu­ture, which go by the gen­eral name of ex­pec­ta­tions; and of th­ese, that which pre­cedes pain bears the spe­cial name of fear, and that which pre­cedes plea­sure the spe­cial name of ‘con­fi­dence’.

I thank Dr. Se­sha Iyer and Dr. Pat­tnaik for the in­vi­ta­tion to ad­dress this young au­di­ence. In mon­e­tary anal­y­sis and pol­icy, in­fla­tion ex­pec­ta­tions play a piv­otal role. Re­cently, in many ad­vanced economies, cen­tral banks have sub­stan­tially ex­panded their bal­ance sheets, which is ap­par­ently in­fla­tion­ary. How­ever, cen­tral banks in th­ese coun­tries al­lay the in­fla­tion con­cerns by in­di­cat­ing that, de­spite sub­stan­tial mone- tary eas­ing, medium-term in­fla­tion ex­pec­ta­tions re­main well an­chored. One in­fer­ence, there­fore, is that in­fla­tion in fu­ture is un­likely to go up if in­fla­tion ex­pec­ta­tions do not go up. In In­dia, we have the op­po­site prob­lem: el­e­vated cur­rent and ex­pected in­fla­tion con­strains the Re­serve Bank in sub­stan­tially eas­ing mon­e­tary pol­icy. This sug­gests that cen­tral banks, as­sign a sig­nif­i­cant weight to in­fla­tion ex­pec­ta­tions in their mon­e­tary pol­icy as­sess­ment. How does one de­fine “ex­pec­ta­tions” which is a be­havioural and psy­cho­log­i­cal con­cept and ap­ply it to eco­nom­ics and prac­ti­cal pol­icy mak­ing? This is the theme of my talk to­day.

I will se­quence my pre­sen­ta­tion as fol­lows: first, I briefly re­view the the­ory and prac­tice of defin­ing in­fla­tion ex­pec­ta­tions; sec­ond, dis­cuss the mea­sures of in­fla­tion ex­pec­ta­tions; third, an­a­lyse the mea­sures of in­fla­tion ex­pec­ta­tions in In­dia; and fi­nally, con­clude with some thoughts on en­hanc­ing our un­der­stand­ing of the in­fla­tion process and ex­pec­ta­tions.

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