Gap between perceptions, expectations narrowing to pre-Covid level: Patra

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The gap between current perceptions and expectations is narrowing rapidly to the pre-pandemic level, Michael Debabrata Patra, the deputy governor of the Reserve Bank of India said at the Statistics Day Conference on Friday.

“The scars of the pandemic are deep but they are healing, and consumers that make up around 60 per cent of GDP are getting their groove back. Seen from this perspective, the future does look a little brig­hter and the messages from the survey a little more credible, emboldening us to expand its coverage into rural areas,” Patra said. 

he highlighted that during the pandemic, while consumers rem­ained persistently pessimistic about the current situation; their optimism for the future seemed boundless. This  stark divergence between present concerns and future hopes reached its widest level ever recorded in the survey's history.
 

The combined impact of the pandemic and the war in Ukraine led to significant disruptions, causing gaps in available data and resulting in substantial errors, the deputy governor said.  

Headline inflation had persistently surpassed the upper limit of the tolerance band set by the central bank for nine consecutive months in 2022. This crucial development prompted the Reserve Bank of India to address the government with a detailed letter, outlining the factors contributing to this deviation and projecting a future trajectory that would bring the price rise back down to the desired 4 per cent mark.

As per the central bank act, if the RBI fails to meet the 2 per cent to 6 per cent inflation range for three consecutive quarters, it is mandated to submit a report to the central government. This report is required to provide an explanation for the deviation, suggest corrective measures, and provide an estimated timeframe for attaining the target inflation level.

Many of these deviations stem from assumptions made about external factors beyond the control of domestic monetary policy, such as crude oil prices, currency exchange rates, monsoon patterns, global economic growth, fiscal strategies, and structural policy changes, Patra said.

“Forecast errors are used as a learning experience by us, resulting in correctional steps and additional information gathering.  Incidentally, the RBI publishes these deviations regularly and explains reasons underlying them, as mandated in legislation or supporting regulations, “ Patra said. “In fact, this has resulted in our near-term forecasts becoming increasingly accurate over time.  Our analysis of forecast errors indicates there is no systematic bias and that they are offsetting when assessed over a sufficiently long-time span.”

The RBI had cut the inflation aim for the current fiscal year to 5.1 per cent from 5.2 per cent forecast in April policy. After briefly reaching the target range in March, India's consumer inflation has been declining, and it reached a 25-month low of 4.25 per cent in May.