I. Objectives of the Reserve Bank of India
The Reserve Bank of India Act, 1934 sets out the objectives of the Reserve Bank: "...to regulate the issue of Bank notes and the keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage."
The formulation, framework and institutional architecture of monetary policy in India have evolved around these objectives – maintaining price stability, ensuring adequate flow of credit to sustain the growth momentum, and securing financial stability.
The responsibility for ensuring financial stability has entailed the vesting of extensive powers in and operational objectives for the Reserve Bank for regulation and supervision of the financial system and its constituents, the money, debt and foreign exchange segments of the financial markets in India and the payment and settlement system. The endeavour of the Reserve Bank has been to develop a robust, efficient and diversified financial system so as to anchor financial stability and to facilitate effective transmission of monetary policy. In addition, the Reserve Bank pursues operational objectives in the context of its core function of issuance of bank notes and currency management as well as its agency functions such as banker to Government (Centre and States) and management of public debt; banker to the banking system including regulation of bank reserves and the lender of the last resort.
The specific features of the Indian economy, including its socio-economic characteristics, make it necessary for the Reserve Bank to operate with multiple objectives. Regulation, supervision and development of the financial system remain within the legitimate ambit of monetary policy broadly interpreted in India. The role of communication policy, therefore, lies in articulating the hierarchy of objectives in a given context in a transparent manner, emphasising a consultative approach as well as autonomy in policy operations and harmony with other elements of macroeconomic policies.
II. The Goals of Communication Policy
The long-term goals of the Reserve Bank’s communication policy are intimately interlinked to its objectives. Faced with multiple tasks and a complex mandate, clear and structured communication is critical for effective functioning as well as enlarging the spheres of traditional policy instruments. The goal of communication policy thus would be to anchor inflation expectation by promoting credibility and understanding of monetary policy; and enabling private stakeholders to map the changing economic circumstances into anticipation of the broad policy direction with reasonable accuracy. In order to be realistic, the communication policy also highlights impediments to achieving stated objectives in a conditional sense.
The principal goals of the Reserve Bank’s communication strategy are: •
Transparency for strengthening accountability and credibility
Clarity on the Reserve Bank’s role and responsibilities with regard to its multiple objectives; managing inherent complementarities/ contradictions and transition
Managing expectations and promoting two-way flow of information/ perceptions
Dissemination of information, statistics and research at various frequencies
III. Principles of Communication
The guiding principles of the Reserve Bank’s communication policy in the context of its goals are transparency, comprehensiveness, relevance and timeliness with a view to improving public understanding as a systematic process of continuous efforts. This communication policy is best described as principle-based rather than rule-based. The specific features of this communication strategy which distinguish them from the country experience are as follows: •
The Reserve Bank’s approach to communicating the policy stance is to explain the stance with...