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RBI’s Viral Acharya says inflation data a ‘challenge’

RBI Deputy Governor Viral Acharya

RBI Deputy Governor Viral Acharya

New Delhi, (IANS) : Reserve Bank of India (RBI) Deputy Governor Viral Acharya on Thursday said inflation data pose a challenge and the central bank is trying to come to grips with the issue, a day after the RBI maintained status quo on its key interest rate citing inflation risks.

Acharya said that data is the challenge important parts of inflation are facing, as these are behaving other than they have done historically.

“Let me just say we are grappling with that,” he said at an event here organised by the Indian Council for Research on International Economic Relations (ICRIER).

Wednesday’s RBI decision to stay the lending rate came after latest official data showed a significant fall in both retail inflation as well as the country’s economic growth rate in the fourth quarter of the last fiscal, impacted by demonetisation, which had raised hopes for a rate cut.

Complimenting RBI Governor Urjit Patel on the monetary policy committee (MPC) maintaining the apex bank’s key lending rate in the nation’s broader good, Chief Economic Advisor (CEA) Arvind Subramanian on Wednesday, however, said that seldom before have economic conditions warranted a substantial monetary policy easing as they do at this juncture.

He offered a plausible alternative macro-economic assessment to the one given by the RBI on Wednesday.

“In this view, not just headline inflation has been running well below the target so far, but even core inflation…has also declined sharply. In this view, inflation forecast errors by the RBI have been large and systematically one-sided in overstating inflation,” he said.

Acharya also said it is easy to predict in data what is likely to repeat itself, “but you can’t build a model necessarily of things that are completely non-stationary or one-off sort of things.”

“But then there are times when the data are just non- stationary, and unfortunately at that point, the kind of micro data that I am talking about is really essential to understand on the ground what’s really happening,” he said. ”

It kind of raises challenges because while it is good to attribute everything to one new thing that is happening in the economy, it unfortunately makes the job of research and projections really hard because it could be that there are stationary forces also at work in the data,” he added.

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