Communication Policy for RBI

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:

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