DAINIK NATION BUREAU
It is a first from a conservative central bank that usually prefers to play it safe. But in a break from the past, the Monetary Policy Committee (MPC) is meeting a day ahead of schedule and for three days (June 4-6), instead of the usual two. Indeed, even as you read this, MPC is meeting to wrestle with the issue of the right monetary fix to address the complex macro-economic conundrum: rising inflation coupled with a nascent economic recovery-—in a scenario where policy options are getting increasingly limited.
So, how should we interpret this break from the past? As an admission that MPC is as foxed as the best in its field and needs more time? Or, is the change only due to “certain administrative exigencies”, as the official release puts it blandly? It’s hard to say. What is indisputable is that given the mix of macro-economic fundamentals and fast-changing global dynamics, even its harshest critics won’t grudge MPC an additional day.
Remember, unlike unforgiving commentators who have the benefit of hindsight, MPC has to frame policy for a future that’s not only unknown, but also, in baseball coach Yogi Berra’s words, ‘ain’t what it used to be’.
And yet, it can’t afford to call wrong. The problem, to quote Claudio Borio, chief economist, Bank for International Settlements, is “the behaviour of inflation is becoming increasingly difficult to understand.
If one is completely honest,it is hard to avoid the question: how much do we really know about inflation process”. The answer: not very much.
Janet Yellen, former chair of the US Federal Reserve, admitted as much. “Our understanding of the forces driving inflation is imperfect… the conventional framework for understanding inflation dynamics could be mis-specified in some fundamental way.” That’s central bank speak for saying the Fed has no clue…ET