May 07, 2019

Why the RBI needs more data scientists and farm economists

In this Mint article, Research Director and Senior Fellow, Niranjan Rajadhyaksha talks about RBI's struggle with food price forecasts and the need to involve Big Data experts and agricultural economists in the policy process. Excerpts:


"A good central banker has to think like a good football player. A footballer usually tries to pass the ball to the position where his colleague will reach a few seconds later rather than where he is right now. Anticipation is important. A central banker has to similarly fix interest rates depending on where inflation will be a year down the line rather than where it is right now. Why? Because monetary policy works with a lag of around three or four quarters. A rate cut or a rate hike today takes time to work through an economy.


This is where RBI seems to be struggling. The dominance of food prices in the Indian consumer price index as well as the food price forecast errors of RBI in recent years has become a problem for monetary policy makers. Here are two radical suggestions. First, the Indian central bank needs to bring Big Data experts in to help keep a closer eye on factors that affect food prices—be it understanding soil moisture levels using satellite data or getting online data from various e-commerce sites to pick early signs of big moves in consumer prices. Second, RBI should consider getting more agricultural economists into its policy process, be it as staff economists, outside advisors or even as members of the Monetary Policy Committee. In fact, the central bank has a big stake in promoting more agricultural economics in the country."


Read the full article here.

Topic : Transitions / In : OP-EDS
x Close Window

Please verify your email address to access this content