RBI has emphasised on clarity in communication of monetary policy says Deputy Goveror of central bank

Michael Debabrata Patra, Deputy Governor, Reserve Bank of India stated yesterday that since the adoption of flexible inflation targeting or FIT in 2016, the RBIs monetary policy communication practices have largely mirrored global best practices in terms of publishing the analysis of evolving economic conditions, including outlooks for growth and inflation and the associated risks, and explaining the rationales for policy decisions, both in policy statements and through press conferences, which is followed by the release of the MPC minutes one fortnight after the policy announcement. Unlike some advanced economy central banks, however, the RBI has generally refrained from providing explicit forward guidance on the policy rate, although it has provided both time- and state-contingent forward guidance during the COVID-19 pandemic. During the policy tightening cycle amidst heightened global uncertainty and overlapping shocks, the RBI was of the view that forward guidance itself could be a source of policy uncertainty undermining policy credibility. Accordingly, it refrained from forward guidance in the policy tightening cycle. Nonetheless, the RBI has emphasised on clarity in communication, while maintaining a balance between both high and low frequency communication of monetary policy.

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