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Communication Policy for RBI

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January 13, 2018

What is the issue?

Given the dynamic economic situation, it is increasingly essential for the RBI to have a better communication policy in place.

What are the recent concerns?

  • Uncertainty - The economy is recovering from demonetisation and is implementing a path-breaking fiscal instrument, the GST.
  • In these uncertain times, when guidance is most needed, the monetary policy document has been shrinking.
  • The time dedicated by the RBI management to interact with the media is also shrinking.
  • Monetary policy - Illustratively, signals given in the last monetary policy of the RBI are hazy.
  • It acknowledges that growth of real gross value added accelerated in the last quarter after five consecutive quarters of deceleration.
  • However, a deeper look into sector wise growth trends reveals that the growth is uneven.
  • Evidently, growth in the coming quarters cannot scale very high to achieve an annual average of 6.7 per cent in 2017-18.
  • The disputed communications leave scope for doubts and uncertainty among the public, economists and the business class.

How significant is communication?

  • Guidance - Besides monetary policy formulation, RBI is tasked with banking regulation, management of external sector and government debt.
  • There are constant challenges in each of these sectors and the public, including economic analysts, seek guidance from the RBI.
  • Governance - Communication helps in making the RBI transparent and contributes to its reputation and accountability.
  • In a market-determined liberalised economic environment, systematic communication helps achieve monetary policy effectiveness.
  • Compulsions to communicate contribute to improving the quality of decision making and provides a helpful feedback.
  • In uncertain times, communication policy assumes added responsibility in view of abundant online information which is sometimes misleading.
  • Economy - Empirical evidence highlights that better communication policy reduces market uncertainty.
  • Growth predictions from RBI should be in line with its interest rate decisions that play a significant role in handling inflation and growth.
  • For credibility, convincing communications are essential from the RBI on explaining the following:
  1. econometric model for growth prediction
  2. rationale behind interest rate decisions
  3. true inflation pictures
  • In all these ways, communication's role is as significant as being recognised as a monetary policy tool in itself.

What could be done?

  • It is essential that RBI have in place a systematised communication policy.
  • The RBI could consider bringing out a summary of the economic and business conditions prevailing in the country.
  • E.g. Beige Book of US Fed, Agents report of the Bank of England.
  • Similarly, RBI could consider theme-based research seminars, conferences and workshops on topics that need urgent attention.
  • Conferences could also encourage academic participation by providing the opportunity to publish research papers.

 

Source: BusinessLine

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