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:
- econometric model for growth prediction
- rationale behind interest rate decisions
- 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
