Among the many instruments in the Reserve Bank of India's (RBI) toolkit is one of immense power, but with the ability to fly under the radar: semantics. It was on full display earlier this month when the Monetary Policy Committee (MPC) delivered its latest resolution on April 8.
In its resolution, the committee altered its language on the guidance it provides on its stance, saying it had decided to "remain accommodative while focusing on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth".
In February, the MPC said it would "continue with the accommodative stance as long as necessary to revive and sustain growth on a durable basis and continue to mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward".
The wordplay
Most of the changes in language in the most recent resolution were quite obvious; others not so much. And they might not have been so if not for one of the members of the MPC.
In his statement, released on April 22 as part of the minutes of the April 6-8 meeting of the MPC, external member Jayanth Varma noted his delight at the removal of the word “stance” from the MPC's April 8 resolution. Dropping the word ensured, according to Varma, the MPC had not provided a forward guidance "that would tie its hands".
Varma, lest it be forgotten, has voted against the accommodative stance since August 2021. If not changing it to neutral, dropping “stance” from the resolution is perhaps the next best alternative for him.
Why did the removal of the word stance go relatively unnoticed? Governor Shaktikanta Das should perhaps shoulder some of the blame here.
In his opening statement at the post-policy media briefing on April 8, Das rather pointedly said “the stance continues to be accommodative while focusing on the withdrawal of accommodation".
The changing ‘stance’
It was unlikely the absence of the word “stance” from the MPC's resolution was an oversight.
"Members are very finicky about all this. It's something deliberate," an economist with an understanding of MPC deliberations said.
The deliberate nature of the move seemingly caught some economists off-guard too.
Gaura Sen Gupta, IDFC First Bank's India economist, noted after the release of the minutes of the MPC's meeting that the stance in the April policy "could be termed as semi-accommodative".
This marked a change from the immediate post-policy assessment on April 8 that the stance remains accommodative, albeit with a clear shift in focus towards removing accommodation.
But why does this change in language matter at all? For Varma, the key reason is to "keep all options open".
Speaking to CNBC-TV18 following the release of the minutes, Varma said the committee had to be ready to act in response to surprises the economy and global geopolitics might throw at it.
"I think the time when you could reassure the markets that everything is fine, that there is no need to worry, that there is a kind of an 'RBI put'... I think those days are over. I think what needs to be very clearly understood is that there is no 'RBI put' at this point of time," Varma said.
An “RBI put” refers to the action taken by the central bank to step in and effect a rescue when there is turmoil in financial markets.
Therefore, while the MPC may not have said it—and Das may have said otherwise—the monetary policy stance is accommodative no more. Nor is it neutral. Only time will tell if an explicit shift to a neutral stance—or maybe even a repo rate hike—will occur at the June meeting.
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