Michael Debabrata Patra: Communicating monetary policy

Opening remarks by Dr Michael Debabrata Patra, Deputy Governor of the Reserve Bank of India, at the "High-Level Policy Conference of Central Banks in the Global South", organised by the Reserve Bank of India as a part of commemoration of its 90th year, Mumbai, 21 November 2024.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Monetary policy announcements are associated with frissons of animated speculation rippling through public discourse. Projections are revised, and the balance of risks are re-tilted. Shadow monetary policy committees take positions in print and in sound bytes. Curve fitting the central bank commences – is it behind the curve? – and accordingly, bird-like postures are conjured to characterise its angle of repose. Markets get poised to reprice, and financial institutions reassess interest margins. Depositors and businesses exert conflicting pulls on public opinion. Questions rent the air on the likelihood of rate movements, by how much, and on shifts in stance.

Underneath the multiple shocks buffeting the global economy, the conduct of monetary policy is undergoing a silent transformation worldwide. In the wake of the pandemic, several central banks have undertaken strategic reviews of their policy frameworks in tacit confirmation of this quiet revolution. These reviews have also shed light on the vexed issue of communicating monetary policy which is the theme of my address.

II. The Evolution of Monetary Policy Communication

The history of changes in monetary policy architecture and implementation is best captured in the story of the evolution of the communication of monetary policy over the years. Until the early 1990s, secrecy was the byword in the conduct of monetary policy. Central banks used to be shrouded in mystery and they believed that they should be. The conventional wisdom was that monetary policy makers should say as little as possible and say it cryptically. The personal motto of Montagu Norman, the longest serving Governor of the Bank of England (1920-44) has been described pithily: "Never explain, never excuse". Monetary policy was regarded as an esoteric art with access to it and its proper execution confined to the initiated elite. It was characterised by an inherent impossibility to articulate its insights in explicit and intelligible words and sentences. In fact, after the Bank of England's rebirth twice in the past century – in 1992 as an inflation targeter, and in 1997 as an independent central bank – a member of its monetary policy committee (2003-06) remembered that inscrutable era when "the stated objective of the Bank of England's press officer was to keep the Bank out of the press and the press out of the Bank."