The Reserve Bank of India (RBI) launched a national financial inclusion index in September, which uses 97 indicators. According to it, the country has achieved just about half of its goal in financial inclusion.
Furthermore, a measurable indicator of financial inclusion can be incorporated into monetary policy rules and reaction functions to examine its correlation with output and inflation and their volatility. For the first time, the influence of financial inclusion on the size and timing of policy rate changes can be gauged, Patra said in his address at a financial inclusion seminar organised by the Indian Institute of Management, Ahmedabad.
Monetary policy authorities typically avoid discussions on inequality. They like to be seen in a macro-stabilisation role and prefer leaving distributional issues to fiscal authorities. Yet, increasingly, they realise that financial inclusion - or the equality of access to formal finance – impacts the conduct of monetary policy more fundamentally than they thought, said Patra, who is in charge of monetary policy.
Financial inclusion helps in the choice of metric for measuring goal variables, in the choice of trade-off between their variances, and in the efficacy of monetary policy in reaching out to the broader economy.
There is a two-way relationship between monetary policy and financial inclusion, and it is unambiguous that financial inclusion is able to dampen inflation and output volatility.
This story is from the December 25, 2021 edition of Business Standard.
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This story is from the December 25, 2021 edition of Business Standard.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 8,500+ magazines and newspapers.
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