Amid growing pressure to increase policy rates to control inflation, the Reserve Bank of India (RBI) Governor Shaktikanta Das said on Friday monetary policy is an art of managing expectations and central banks have to make continual efforts to shape and anchor market expectations.
"Monetary policy is not merely a science where we tweak some instrument to achieve an objective. It is also an art of creating new instruments and taking policy calls in response to anticipated and evolving challenges and communicating them with prescience and clarity, especially during crisis times," the RBI Governor said while addressing an event at the National Defence College, Ministry of Defence, in the national capital.
"Decisiveness, timing and communication are key to effective monetary policy," he said.
However, Das emphasised that the central bank's communication needs to be backed by commensurate actions to build credibility and instil wider confidence in the policies.
"We also recognise that communication needs to be backed by commensurate actions to build credibility and instil wider confidence in our policies," he said.
"In this process, communication has gained importance although it works both ways - while too much of communication can confuse the market, too little may keep it guessing about the central bank's policy intent. Therefore, central banks have to tread a very fine line," the RBI Governor said.
Das said 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.
( With inputs from ANI )
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