RBI Looking at New Indicators for Policy Framework - The New Indian Express

RBI Looking at New Indicators for Policy Framework

Published: 05th February 2014 06:00 AM

Last Updated: 05th February 2014 01:18 AM

Reserve Bank of India Governor Raghuram Rajan is looking at new economic indicators that will power the central bank’s monetary policy making. The latest indicator is the housing start up index (HSUI) that has studied the trends in new construction of residential housing in 2009-11 in 27 Indian cities.

Economists and analysts say that there is likely to be a change in outlook as far as the central bank reviewing economic indicators is concerned. For instance, the RBI is expected to look at Consumer Price Index (CPI) rather than Wholesale Price Index (WPI) as a key indicator of inflation after the Urjit Patel committee report that recommended that CPI inflation should be the nominal anchor for the monetary policy framework. And the nominal anchor should be set at 4% with a band of +/-2% around it.

Commenting on the housing start up index, State Bank of India chief economist Saumyakanti Ghosh said,” This index is going to be an important indicator on monetary policy making going forward. It will also bring transparency to policy making as the housing sector has been an enigma so far”.

“There are anomalies at present for instance in the CPI, the housing index grew at 10% where as there is a slowdown all around,” he added.

Commenting on this new index, RBI said, “Housing starts (i.e., new dwelling units for which construction has begun in a given period) is considered as a leading indicator of economic activity, given its forward and backward linkages with other sectors of the economy. An increase in the number of housing starts would be indicative of an increase in investment, business and consumer optimism and vice versa”.

The index which has been thrown open for public debate has noted that more construction activities are going on in Kolkata, Chennai, Visakhapatnam, Bangalore, Pondy, Guwahati, Ahmedabad and Nagpur in Q1 of 2009 to Q4 of 2011. Recently construction activities increased in Jaipur, Bhopal and Jamnagar.

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