Communication is key to effective monetary policy: Shaktikanta Das

Mumbai, Feb 4 : Reserve Bank of India Governor Shaktikanta Das on Friday highlighted the importance of comm cation in shaping an effective monetary policy. Decisiveness, timing and comm cation are key to effective monetary policy, he said, while delivering a lecture at the National Defence College. Das noted that 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. 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, he said. “In this process, comm cation has gained importance, although it works both ways – while too much of comm cation can confuse the market, too little may keep it guessing about the Central bank’s policy intent,” the Governor said, adding that the Central banks have to tread a very fine line. Terming the monetary policy as an art of managing expectations, Das said that 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 comm cation strategies, to ensure the desired societal outcomes. “This is, however, an iterative process and Central banks are only getting better at it incrementally,” the Governor added. PSK RJ

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