RBI Governor Emphasizes the Importance of Forward-Looking Monetary Policy:
Reserve Bank of India (RBI) Governor Shaktikanta Das stressed the necessity of forward-looking monetary policy, warning against relying solely on a rear-view approach, which could lead to unintended consequences. Drawing an analogy with driving a car, Das likened the conduct of monetary policy to navigating a road with potential obstacles and speed bumps.
He emphasized that similar to a cautious driver who anticipates and adjusts to road conditions ahead, successful monetary policy relies on credible forecasts of key variables like inflation and growth. Reacting abruptly to economic challenges, without adequate foresight, risks policy errors and negative outcomes.
Das also underscored the importance of the Monetary Policy Committee (MPC) in monitoring price stability and acting prudently to prevent the spread of inflation throughout the economy. The RBI’s commitment to achieving its 4 percent inflation target remains firm. Furthermore, Das highlighted the RBI’s liquidity management strategies in the post-Covid era.
Measures introduced during the pandemic were designed to ensure that market participants could plan their activities within specified timeframes for liquidity return. This approach allowed the RBI to effectively roll back COVID-related special measures in a timely manner, preventing disruptions to financial and banking sector stability. The central bank is closely monitoring call money market rates to facilitate the effective transmission of policy actions. This approach supports overall financial stability in the economy.
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