Monetary policy is an art of managing expectations, says RBI Governor

Reserve Bank Governor Shaktikanta Das on Friday said “monetary policy is an art of managing expectations” as he emphasised the need for an effective communication strategy amid concerns over rising inflation fuelled by geopolitical developments.

The conduct of monetary policy has undergone notable changes 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, he said while delivering a lecture at the National Defence College here. “As monetary policy is an art of managing expectations, 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 communication strategies to ensure the desired societal outcomes,” he said.

The communication works both ways — while too much communication can confuse the market, too little may keep it guessing about the central bank’s policy intent, he added.
The central bank also recognise that communication needs to be backed by commensurate actions to build credibility and instil wider confidence in policies.

The Reserve Bank of India (RBI) has actively used communication through a variety of tools — the MPC resolutions and minutes, exhaustive post-policy statements together with a statement on developmental and regulatory measures, press conferences, speeches and other publications, especially the biannual Monetary Policy Report (MPR) — to anchor expectations, Das said. AGENCIES