Optimal Communication: The Pillar of Central Banking Strategy

RBI Deputy Governor Michael Patra underscores the crucial role of communication in monetary policy at a conference in Mumbai. He highlights a balance between transparency and discretion and notes the significance of communication during crises. Patra shares RBI's evolving strategy amidst global and domestic challenges.

At a notable conference in Mumbai marking the Reserve Bank of India's 90th anniversary, Deputy Governor Michael Debabrata Patra highlighted the pivotal role of optimal communication in central banking. He emphasized that the balance between transparency and discretion is crucial to avoid problems like the "signal extraction problem" while ensuring markets are not left guessing.

Patra also stressed how past global crises, including the financial downturn and the COVID-19 pandemic, have affirmed communication's importance as a strategic policy instrument. He referred to the "three Es of communication"--Explanation, Engagement, and Education--as central to navigating uncertainty, especially when central banks stood as a primary defense line during the pandemic.

Discussing the RBI's evolving communication strategy, Patra noted its tailored approach, balancing between domestic challenges and international practices. He pointed out that the RBI has cautiously avoided explicit forward guidance like some advanced economies, due to prevailing uncertainties. The conference, themed "Building Synergies," is part of the RBI's continuous efforts to foster cooperation among central banks in the Global South.

(With inputs from agencies.)