Central banks have to make continual efforts to shape and anchor market expectations says RBI Governor

The Reserve Bank Governor Shaktikanta Das highlighted the need for an effective communication strategy at the central banks in a speech. The conduct of monetary policy has undergone notable changes both in India and across the world as economies and markets evolved and policymakers gained greater insights into how economic agents interact in a complex economic system. Das noted that globally, the evolution of monetary policy has swung from being more directive and discretionary to a strict rule-based regime, before settling to the current consensus for a pragmatic mix of rules and discretion. In this process, communication has gained importance although it works both ways - while too much of communication can confuse the market, too little may keep it guessing about the central bank's policy intent. Therefore, central banks have to tread a very fine line. As monetary policy is an art of managing expectations, central banks have to make continual efforts to shape and anchor market expectations, not just through pronouncements and actions but also through a constant refinement of their communication strategies to ensure the desired societal outcomes. This is, however, an iterative process and central banks are only getting better at it incrementally.

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