Reserve Bank of India (RBI) Deputy Governor Michael Debabrata Patra highlighted the importance of optimal communication in monetary policy, describing it as the “gold standard” for all central bankers. Speaking at the ‘High-Level Policy Conference of Central Banks in the Global South’ in Mumbai on Friday, Patra emphasized the delicate balance between transparency and discretion that central banks must maintain in their communication strategies.
Patra explained that too much communication could create a “signal extraction problem,” confusing markets, while too little could lead to uncertainty. He underscored that the optimal level of communication ensures clarity without overwhelming stakeholders.
Reflecting on the impact of the global financial crisis (GFC) and the COVID-19 pandemic, Patra noted that these events cemented the role of communication as a critical policy instrument. “Explanation, Engagement, and Education had become the three Es of communication when the pandemic struck,” Patra remarked, noting that central banks had to step in as the first line of defense during periods of high uncertainty, utilizing the lessons learned from the GFC.
Patra also outlined the RBI’s approach to monetary policy communication, stating that it is constantly evolving to balance the demands of country-specific stakeholders with global best practices. Notably, he pointed out that unlike some advanced economies, the RBI has refrained from providing explicit forward guidance in recent tightening cycles due to the prevailing uncertainties.
The conference, held as part of the RBI’s 90th anniversary celebrations (RBI@90), brought together central banks from the Global South. The theme of the conference, “Building Synergies,” focused on fostering cooperation across central banking institutions. This conference, held on November 21-22, 2024, is the third international event in a series of conferences and seminars organized by the RBI to mark its anniversary.
