spf ) is another important source to gauge the inflation expectations from analysts. the survey is usually used for forecasting a large variety of macroeconomic variables in addition to inflation, viz., gross domestic product ( gdp ), interest rates and the unemployment rate. as professional forecasters process large volume posen, adam ( 2011 ), ‘ the soft tyranny of inflation expectations ’, oxonia distinguished lecture, oxford, february 22. bis central bankers ’ speeches of information and rely on econometric models, their forecast of inflation expectations can be considered more rational than that of pure households. measures of expectations in india i now turn to issues pertaining to measurement of inflation expectations in india. in the recent years, the reserve bank has been assessing the state of inflation expectations in the indian economy through several means. it conducts a series of surveys aimed at different economic agents as well as model based inflation forecasts ( table 1 ). these surveys have evolved over time with periodic refinements. let me give you some perspective on these surveys. table 1 survey - based inflation expectations first, the reserve bank has been conducting a survey of inflation expectations of households since september 2005 to get a measure of the public pulse on inflation. the initial rounds of the survey were only qualitative in nature and from the 3rd round, questions about expected rate of inflation over the next three months and next one year were added. from the 9th round in september 2007, a question on the respondents ’ perception of the prevailing inflation rate was also added. a question on awareness of the public on the rbi ’ s role to control inflation was added in the 21st round in september 2010. second, the survey presents a measure of households ’ present perception of inflation as well as their expectations about the near future. the inflation expectations survey of households is conducted in twelve cities, three each from the north, south, east and west zones covering the major metros from each zone and eight other cities. the 4, 000 respondents are chosen within a city in such a manner that a good geographical and occupational coverage is achieved. the price expectations are sought in the survey for general prices and for five groups : food products, non - food products, consumer durables, housing and services. bis central bankers ’ speeches third, the reserve bank ’ s consumer confidence survey gives an assessment of the consumer sentiments on prices, as it is an important variable influencing the overall consumer confidence. the overall consumer confidence is assessed on the basis of respondents perceptions of the general

is important to identify the sources of reserve accretion in this latest episode. there are some countries like russia where the reserves are built out of current account surplus. in countries like china, korea and taiwan, the surplus, in both current and capital account, led to accumulation of reserves. on the other hand, there are countries like india, where the reserves accretion was driven more by capital account surplus and not due to current account surplus, broadly implying that capital inflow was more than what could be normally absorbed in the domestic economy. net capital flows have remained much larger than the current account deficit in india as well as in most of latin america and central & eastern europe. in case the reserve accumulation is due to large capital flows, it may be useful to distinguish between debt and non - debt flows as also between foreign direct investment and generally less stable portfolio flows. in fact, the stock as well as flow in each category would be relevant for reserve management. while the marking - to - market of the assets and liabilities may be difficult, it might not be irrelevant. thus, while the traditional indicators of adequacy of reserves are based on trade, debt and monetary indicators, or even the ‘ guidotti rule ’ or ‘ liquidity at risk ’ rule suggested by alan greenspan may help explain the adequacy of reserves, they need to be supplemented with, what may be described as, multiple indicators to assess the adequacy of reserves of any country at a given juncture. ( iii ) difficulties in computing quasi fiscal cost of reserves a simple method of calculating net cost of carrying reserves to the central bank is the difference between the interest rate on domestic securities and the rate of return earned on the foreign exchange reserves adjusted for any exchange rate change. the magnitude of the cost, which is often difficult to estimate, varies with the extent of sterilisation and the yield differentials. these are termed “ quasifiscal ” costs in the literature since the costs to the central bank are passed on to the sovereign through a lower transfer of profits. in countries where local interest rates are well above international levels, such carrying costs could be positive, while if the reverse is true such carrying costs could be negative. a recent study by the bis has shown that carrying costs are negative in a number of countries at current interest rates. the study states that in china, for instance, the one year interest rate in june 2006 was less than half the comparable us treasury bond