Mumbai (Maharashtra) [India]: Optimal communication is the gold standard for all central bankers, said Reserve Bank of India’s Deputy Governor, Michael Debabrata Patra on Friday.
Speaking at the ‘High-Level Policy Conference of Central Banks in the Global South’ organised by the RBI on its 90th year in Mumbai, Patra emphasised the importance of effective communication in monetary policy.
Underscoring the delicate balance between transparency and descretion, he said,” The optimal level of communication remains the gold standard for all central bankers – too much can create a “signal extraction problem” while too little can keep the markets guessing.”
He further added that the lessons of the global financial crisis and Covid-19 pandamic further cemented the role of communication as a a policy instrument.
“Explanation, Engagement and Education had become the three Es of communication8 when the pandemic struck. The lessons of the GFC came in handy during the pandemic when central banks became the first line of defence in an environment of high uncertainty,” Patra said.
Talking about the RBI’s approach, he added that its monetary policy communication strategy is constantly evolving as it balances the diverse and strident demands of country-specific stakeholders with global best practices.
He added that unlike some advanced economies, the RBI has refrained from explicit forward guidance during recent tightening cycles, citing heightened uncertainties.
“Forward guidance was actively used by central banks to go beyond the short term money market rate and directly influence longer-term rates,” Patra explained.
As part of commemoration of the Reserve Bank of India’s 90th year since its establishment (RBI@90), a “High-Level Policy Conference of Central Banks from the Global South” was organised during November 21-22, 2024 in Mumbai.
The theme of the conference was “Building Synergies” across the central banking fraternity of the Global South. This is the third international conference as part of several conferences and seminars being organised by the Reserve Bank of India during the year.