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Monetary review: comfortingly predictable

IF BEING predictable is a virtue in enunciating macro economic policies the RBI must rank high up in the list of the most virtuous institutions.

Its quarterly statements on the monetary and credit policy are a classic demonstration of how effectively policy issues can be conveyed without causing any major upheavals. The major gain is from the implication that the financial market and the regulator have learnt to co-exist. That in turn suggests that banks and other intermediaries are able to read the regulator's mind fairly accurately and stay in line with the official policies.

It was not always so. It was only under Bimal Jalan that the RBI decided to convert the policy pronouncements into "non-events" devoid of headline-making announcements. This was not because regulation had lost its teeth in the reform era and therefore let the intermediaries take the regulator for granted.

In fact it is only when practically all interest rates have been decontrolled and the external value of the rupee is for all practical purposes market determined that the monetary policy and other official pronouncements have to be scrutinised even more carefully. The RBI no longer dictates, for instance, what interest rates banks should pay for a three-year deposit. Yet it signals higher (or lower) rates and banks as well as their customers can read their own _ deeper _ meanings.

Besides, monetary policy statements traditionally cover the macro economy. The RBI's assessments of the economy are the most authentic and extensively relied upon.

CRL

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