India’s foreign exchange (forex) reserves increased by $4.368 billion during the week ended April 26, official data showed. According to the Reserve Bank of India’s weekly statistical supplement, the overall forex reserves rose to $418.515 billion from $414.147 billion reported for the week ended April 19.

India’s forex reserves comprise Foreign Currency Assets (FCAs), gold reserves, Special Drawing Rights (SDRs) and India’s reserve position with the International Monetary Fund (IMF).

On a weekly basis, FCAs, the largest component of the forex reserves, edged higher by $4.387 billion to $390.421 billion. Besides the US dollar, FCAs consist of 20-30 per cent of the other major global currencies.

The RBI’s weekly data showed that the value of the country’s gold reserves was stagnant at $23.303 billion.

However, the SDR value inched lower by $5.9 million to $1.449 billion, while the country’s reserve position with the IMF slipped by $13.6 million to $3.341 billion.

Meanwhile the Reserve Bank of India (RBI) said no gold was shifted outside the country in 2014 or thereafter while stating it is a normal practice for Central banks world over to keep their gold reserves overseas with Central banks of other countries such as Bank of England for safe custody.

The statement comes amidst reports that the central bank shifted abroad a part of its gold holding in 2014.

It is a normal practice for central banks world over to keep their gold reserves overseas with central banks of other countries like Bank of England for safe custody,” said the RBI statement.

“It is further stated that no gold was shifted by the RBI from India to other countries in 2014 or thereafter.

Thus the media reports are factually incorrect,” the statement said.

The Congress had tweeted a report regarding shifting of 200 tone of the RBI’s gold to Switzerland in 2014.

An RBI Research Report has found errors in the inflation projections of the apex bank’s monetary policy committee (MPC), especially for the period between April 2015 and September 2018.

According to the report, cross-country studies show higher forecast errors when share of food is high in the CPI (Consumer Price Index).

The case-in-point is the retail inflation projections from April 2015 to September 2018 which had shown two periods of large projection errors associated with unanticipated sharp fall in food inflation, especially in veggies.

Under the present policy framework, inflation forecasts are critical for the conduct of forward-looking monetary policy as they play a special role in an inflation targeting framework by acting as an intermediate target.

Hence, the significance of accurate forecasts can hardly be overemphasised, said the report. The bi-monthly resolutions of the MPC of the RBI provide inflation forecasts for up to four quarters ahead.

The Monetary Policy Report (MPR), released twice in a year (April and October), provides inflation forecasts for up to eight quarters ahead.

Inflation forecasts were also an integral part of monetary policy communication even before the adoption of the flexible-inflation targeting framework in 2016, but they assumed a special significance under the FIT regime.

As per the report, the CPI inflation projections from April 2015 to September 2018 shows two periods of large projection errors associated with unanticipated sharp fall in food inflation, especially in veggies.

An examination of the CPI inflation projections in India during April 2015 to September 2018 showed two periods of large projection errors, − October 2016 to March 2017 and June-September 2018.

Both episodes were associated with unanticipated sharp fall in food inflation particularly in case of perishables, stated the report titled “Inflation Forecasts: Recent Experience in India and a Cross-country Assessment”.

The analysis also indicates that globally, since the 2008 financial crisis, a phenomenon of over prediction has been observed, with actual inflation undershooting forecasts.

In the case of India, the mean forecast error was somewhat negative (actual inflation undershot the inflation forecasts). Including the period of demonetisation, bias in the forecast errors turns out to be statistically significant.

The forecasts by the RBI staff have been by and large efficient, though there have been deviations of actual inflation from the forecasts.

Indo-Asian News Service