RBI MPC Minutes: The conventional forecasting model currently used may not be sufficient enough to deal the current inflation shock, according to Michael Debabrata Patra, Deputy Governor of Reserve Bank of India (RBI). The central bank has released the minutes of the Monetary Policy Committee Meeting,  that happened on September 28-30.

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“This inflation shock defeats conventional forecasting models. The parameters that characterise recent developments are far outside the ranges predicted by the conventional models. No one really knows what is too far or what is far enough in this environment,” said Patra, as mentioned in the minutes of the meeting.

The central bank has increased the policy repo rate under the liquidity adjustment facility (LAF) by 50 basis points to 5.90 per cent with immediate effect, during the last policy meet.

“Central banks, therefore, adopt a risk minimisation strategy, ensuring they eradicate inflation, while allowing them to correct course and lower interest rates later if necessary,” Patra further added.

According to the members who were a part of the meeting, the Indian economy is likely to face several challenges due to the external factors. RBI might have to answer the government as the strategy to curb the inflation has not worked in the past few months, despite repeated rate hikes.

“The future trajectory remains clouded with uncertainties arising from continuing geopolitical conflicts, possibility of further supply disruptions, volatile financial market conditions and domestic weather related factors,” mentioned RBI governor Shaktikanta Das.