Posts tagged ‘Inflation Expectation’

Inflation Expectation – RBI’s Note

Summary of Speech by Shri Deepak Mohanty, Executive Director, Reserve Bank of India at S.P. Jain Institute of Management & Research

  • While formulating monetary policy RBI not only considers Quantitative information like Inflation, Money supply, Multiplier, Growth, Employment, etc but also weighs(though less) views/expectation of Inflation.
  • RBI to gauge Inflation expectation conducts surveys of Households, Professionals, experts, etc.
  • RBI says Inflation expectation can be well gauged
    • If there exists an Inflation Indexed Bond. (RBI had issued Inflation Indexed Bonds in 1997 and after tepid response they preferred to drop out the same.)
    • Using pure expectation theory which says when shot rates rises long term follows and vice-versa.
    • Using Consumer Confidence survey which gives an assessment of the consumer sentiments on prices.
    • Using professional forecaster’s survey as they have an established research set up and bring out periodic updates on economic development.
  • Inflation Expectations Survey of Households, Survey of Professional Forecasters and Consumer Confidence Survey are eyed by market professional. Inflation Expectations Survey of Households are subjective assessments of around 4,000 households across 12 cities proposed to be covered in the Survey round and are based on households’ individual consumption baskets. Survey of Professional Forecasters is assessments of around 30 professional forecasters who votes in for inflation expectation of next four quarters, next 5 years and next 10 years.

  • Survey of Professional Forecasters is said to be more reliant and accurate then Inflation Expectations Survey of Households.
  • Inflation Expectations survey of household provides a measure of sentiment of Inflation expectation that is of urban areas. Hence, RBI is working on some feasible model where they can work on rural areas as well.

Let me quote a sentence of Shri Deepak Mohanty, Executive Director, Reserve Bank of India

Finally, the results of the above surveys are used as inputs for monetary policy formulation and are placed on RBI website for public dissemination.

Click here to read full speech

One can get update on these quarterly surveys at: >> Publications >> Quarterly

More about Kush Sonigara on Google+

Tag Cloud