Central bank's communications need to be backed by actions to build credibility, instil confidence: RBI's Das

File Photo of RBI Governor Shaktikanta Das

Central bank's communication needs to be backed by commensurate actions to build credibility and instil wider confidence in the policies, said Reserve Bank of India (RBI) Governor Shaktikanta Das on March 4.

"We also recognise that communication needs to be backed by commensurate actions to build credibility and instil wider confidence in our policies"

"We explain the rationale of our actions in the best traditions of accountability and transparency, the hallmark of a modern market-based approach to monetary policy making," Das said speaking at the National Defence College, Ministry of Defence, New Delhi.

The RBI believes in two-way communication for informed policy decisions, the Governor said.

"With this objective, we hold detailed interactions with analysts, economists, researchers, banks, academic bodies and research institutions, trade and industry associations, and several others. We have followed this approach not only for the much-publicised monetary policy actions but also for other policies," Das said.

With the declaration of COVID-19 as a pandemic in March 2020, communication became more challenging as the RBI had only digital interface with media and market participants while at the same time the central bank had to undertake several emergency conventional and unconventional measures as the crisis unfolded, Das said.

Das said 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,” Das said, adding as monetary policy is an art of managing expectations, central banks have to make continual efforts to shape and anchor market expectations.

This should be done not just through pronouncements and actions but also through a constant refinement of their communication strategies to ensure the desired societal outcomes, Das said.

Further, Das said the conduct of the 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.

The governor added that recalibrating the pandemic time policy path, as and when the situation warrants, would present its own share of communication challenges.

Explaining the RBI’s response to pandemic, Das said more than 100 measures were undertaken since March 2020 to support the financial system from the pandemic impact.

On two occasions – March and May 2020 – the MPC meetings were held ahead of the schedule while two other standalone statements were made by the Governor outside the Monetary Policy Committee (MPC) cycle, Das said.

“These off cycle MPC meetings and standalone statements demonstrated the RBI’s readiness to undertake pre-emptive actions,” Das said.

“We were perhaps the only central bank in the world to have set up a special quarantine facility with about 200 officers, staff and service providers, engaged in critical activities to ensure business continuity in banking and financial market operations and payment systems,” Das said.