Central banks’ influence on the global economy has been on the rise over the past few decades with ultra-low interest rates and unconventional monetary policies such as quantitative easing. Whilst they can be credited to have pulled financial markets up from the crises, their impact on the real economy remains a matter of debate. Growth is still amiss in Europe and Japan whilst the Fed is frustratingly short of its inflation target. Closer home too, the RBI’s own inflation forecasting hasn’t been particularly accurate, thereby resulting in high real interest rates. It is this aspect of central bankers’ ability to forecast macro-economic variables or the lack thereof and hence the efficacy of their policies is the main point of Claire Jones’ Alphaville piece. In this midst, she points out to the statement of Mr Chetan Ghate, one of the members of the RBI’s Monetary Policy Committee (MPC) – an excerpt of which goes like “I will carefully watch the evolving growth-inflation risk picture. Estimates of economic growth in India have unfortunately been subject to a fair degree of floccinaucinihilipilification”. Claire explains “While the choice of word is smug, its meaning — that trying to put a firm estimate on certain things is essentially worthless — harks back to an era of the more humble central banker.
We’re not there yet, though. Following this admission of fallibility, Mr Ghate immediately reverted back to type. The next words out of his mouth: “Notwithstanding this, growth is likely to pick up from Q2-Q3: 2019-2020.”