Archive for February 18th, 2014

While the RBI has moved to CPI, FinMin remains on WPI..

February 18, 2014

Finance Minister in  his 2014-15 interim budget speech says:

Last year, when I read the Budget speech, WPI headline inflation stood at 7.3 percent and core inflation at 4.2 percent. Through the year, inflation saw its ups and downs. At the end of January 2014, WPI inflation was 5.05 percent and core inflation 3.0 percent. Both the Government and the RBI have acted in tandem. While our efforts have not been in vain, there is still some distance to go. Food inflation is still the main worry, although it has declined sharply from a high of 13.6 percent to 6.2 percent.

One may question whether RBI and FinMin have acted in tandem to tame inflation as latter was more into growth issues. But the differences over which index to use – WPI or CPI-  remains.  And this is not the usual FinMin RBI fight (as they have stopped for the wrong reasons) but has much deeper ramifications.

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Is Prof. Krugman a French war general?

February 18, 2014

Another round of debate on relevance of macro modelling.

It starts with NoahSmith’s poston macro modelling.  Prof Krugman reponds in his usual style connecting French war generals with macro modelling:

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Why did RBI hold its TAC just before submission of Patel Committee report?

February 18, 2014

Imagine coming for a meeting not knowing that in the next you are likely to get fired for no real fault of yours.

RBI’s recent TAC was one such meeting. The minutes were released recently which said the meeting happened on 20th Jan. The policy was held on 28th Jan. It is ironical that  on 21st Jan 2014, Patel Committee submitted its mon pol framework report. And as we know the PC recommends scrapping TAC and instead make a MPC much like BoE etc.

The gap between TAC and monetary policy struck me as have been tracking this for a while. The gap between the two looked a bit wide. So  just looked at the dates of the two events. As TAC minutes were published from Jan-11 policy onwards, So here it goes:

TAC date MP date Gap
20-Jan-14 28-Jan-14 8
23-Oct-13 29-Oct-13 6
24-Jul-13 30-Jul-13 6
25-Apr-13 3-May-13 8
23-Jan-13 29-Jan-13 6
23-Oct-12 30-Oct-12 7
25-Jul-12 31-Jul-12 6
11-Apr-12 17-Apr-12 6
18-Jan-12 24-Jan-12 6
19-Oct-11 25-Oct-11 6
20-Jul-11 27-Jul-11 7
27-Apr-11 3-May-11 6
19-Jan-11 25-Jan-11 6

I was kind of right. Mostly the gap has been 6 days (9 out of 13 times). It was 7 days in 2 cases and 8 days in 2 cases, including the recent one.

It can’t be just a matter of coincidence that the report was submitted on 21st. The head of the committee was part of TAC being the DG of RBI.  So surely, things were known. Either the TAC could be held on 22 or the report submitted a little earlier. some might say this was because of travel issues. Not sure as during policy time  most of the seniors are present. And you could ask them to be present..

This could have led to some debates within TAC members on their comments on the new framework. This is no small policy change as the whole framework is expected to undergo change. RBI top brass could have sought suggestions/comments on the proposed policy change. Fed I know calls experts to comment and share their views apart from mon pol decision. Something similar could be done for this so called change as well.

As this blog has said earlier as well, one does not know why RBI has been following such an adhoc approach with respect to this report. It looks like a pet project of RBI top brass. I mean the committee did not even invite comments from public/experts and in 7 days flat has adopted some suggestions from the committee. No one knows what is the status of the report and how it just gives the Parliament a miss on critical decisions related to RBI Governance..

I am wondering what RBI top brass was thinking when the TAC members were giving their suggestions. Perhaps laughing and thinking that this is your last meeting and lecturing us. In that case why did RBI really waste their time and resources to bring them to RBI and give their policy suggestions. The policy decision on 28 Jul was anyways beyond logic and one did not need TAC suggestions which largely argued to pause.

Perhaps RBI did not want any comments on this seeing some resistance. So just kept it secretive just like the debt swap deal..So much so for transparency in mon policy..


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