While debate is good, what stood out is how the members read the inflation model differently, with one wanting to err on the side of caution while others were keen for an inflation-growth trade off, he said. Nevertheless, the split raises questions on how much trust the MPC members place in the monetary authority’s forecasting model, which has consistently overestimated price pressures. The RBI’s inflation assessments have come under intense scrutiny after a slew of readings fell short of projections. Last December, the RBI had forecast consumer price inflation of 5% in March with an upside bias, though the actual print was 3.9%, below the RBI’s 4% medium-term inflation target. “There is no clear model understanding of the impact of monetary policy and shocks on India-specific features like the informal sector and shadow economy.

Source: Mint August 07, 2017 03:22 UTC