Shaktikanta Das: Monetary policy and central bank communication

Address by Mr Shaktikanta Das, Governor of the Reserve Bank of India, at the National Defence College, Ministry of Defence, Government of India, New Delhi, 4 March 2022.

Central bank speech  | 
04 March 2022
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 |  15 pages

I am happy to have been invited by the National Defence College (NDC) to share some of my thoughts with the participants of the 62nd NDC course on National Security and Strategic Studies. The NDC has earned a reputation for being a centre of excellence in the study and practice of National Security and Strategy. It is good to see a mix of officers of Armed Forces and Civil Services from India as well as from other countries who are participating in this course. In my experience, these inter-disciplinary and cross-country gatherings, as in your case, provide the best opportunities for learning and evolution of ideas.

2. Central banks remain at the heart of modern monetary and financial systems. They have several instruments at their disposal to carry out their wide-ranging mandate which includes monetary policy as the prime tool to achieve macroeconomic stability. In this process, central banks through their monetary policy operations influence longer-term interest rates, overall economic activity and ultimately, prices. They aim to achieve price stability (low and stable inflation) over a period of time while minimising fluctuations in output and employment. Over time, the functions and priorities of central banks have evolved in line with domestic and global economic and financial developments and the prevailing political-economic discourse. Yet, fostering monetary and financial stability has always remained the most important policy anchor of a central bank in its pursuit of achieving maximum sustainable levels of output in the economy. This is aptly reflected in the Preamble to the Reserve Bank of India Act, 1934 that describes the broad mandate of the Reserve Bank as follows:

"it is expedient to constitute a Reserve Bank for India to regulate the issue of Bank notes and 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".

3. In my talk today, I shall focus on the evolution of ideas that shaped Indian monetary policy. 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. Decisiveness, timing and communication are key to effective monetary policy. In my address today, I propose to dwell upon aspects of monetary policy and central bank communication.