The importance of central bank communication

The RBI should think of providing signals that reduce the disconnect with market expectations

Central Bank communication across the world has been the subject of much intellectual discourse, but it has almost always been in the context of the communication of monetary policy. That is understandable because monetary policy is at the heart of central banking and also because communication of monetary policy is possibly more challenging than communicating other policies. 

Over the last two decades, central banks have moved towards clearer communication and greater transparency. This has been driven by several motivations. First, central banks have realised that open and transparent communication enhances policy effectiveness. This shift reflects a shift in the theory