Monetary policy alone can’t sway development: RBI

Mumbai : RBI deputy governor Michael Patra has mentioned that financial policy by itself can’t affect long-run development of the financial system. Highlighting the challenges earlier than financial policymakers, Patra mentioned that there is no such thing as a visibility on the aim variables of inflation and development as the previous numbers are one month outdated, whereas these on GDP are not less than three months outdated.
Speaking on the SBI conclave on Thursday, Patra mentioned that communication has turn into an essential instrument within the central banking toolkit. He mentioned that communication was now being utilized by international central banks together with these within the US and the UK for doing a ‘policy pivot’.
“Most recently, an aspect of communication that has caught the imagination of the public is the ‘policy pivot’ — deliver a 75-basis-point (100bps = 1 percentage point) rate hike and then, through subtle shifts in messaging, convince markets that dovishness will characterise the next monetary policy meeting,” he mentioned. He added this was seen within the post-council assembly convention within the European Central Bank in addition to US Fedchair Jerome Powell’s postNovember 2 assembly assertion.
“Monetary policy has to be forward-looking, and that is because when the policy rate is changed, it takes quite a while before it reaches lending rates and aggregate demand in the economy. Hence, we can only target future inflation, not yesterday’s,” mentioned Patra. “Furthermore, the goal variables are moving over time and so monetary policymaker has to take into account not their known positions but their uncertain future trajectory,” he added.

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