Indian monetary policy and the fine art of acting without acting

RBI may have effectively set the course for slightly higher credit costs without making changes in its benchmark policy rates

- RAJRISHI SINGHAL

The Reserve Bank of India (RBI) wears many hats, but its role as a monetary authority has an outsized influence on the economy. Under that embodiment, it has a somewhat dilemmatic mandate —maintaining price stability while fostering growth—which often requires it to dissemble while communicating policy frameworks to markets. The art of central-bank speak essentially entails speaking a lot, but not saying much, and occasionally deploying sophistry to camouflage policy intent. The central bank’s latest monetary policy may have also used a visual trick: what you see is not what you get.

RBI’s October 2023 monetary policy has hewed close to the street consensus, leaving the repo rate unchanged at 6.5%. The stance of the monetary policy is also unchanged: “focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth." There are three ideas in here: withdrawal of accommodation implies liquidity in the system will remain surplus and RBI will continue to drain it out, aligning inflation with its 4% target, and growth support through credit availability. While all these seem boiler-plate in nature, the central bank may have effectively introduced a rate hike (or dearer credit) without increasing benchmark interest rates.