ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

A+| A| A-

Sharpening Tools to Strengthen Monetary Transmission

The central bank works to improve the transparency and transmission of monetary policy.

The Reserve Bank of India’s (RBI) operational independence has been put to severe test with the issue of the ordinance on settling disputes between different regulatory agencies that was promulgated in mid-June. RBI Governor D Subbarao’s intervention has prompted the government to make certain changes to the Bill introduced in Parliament in the current monsoon session. While the final outcome is not yet known, the RBI governor’s concern about the status of the central bank was visible in the press conference following the announcement of the first quarter policy review for 2010-11 on 27 July. It might have also given strength to the central bank to tighten rates in the larger interests of the economy, much against the demand from business to keep rates low.

The policy stance and responses are being increasingly driven by the growth-inflation dynamics. Though the current phase started in late 2009, the pace of tightening has remained rather slow, perhaps because of international pressures not to exit accommodative policies which could have hurt the recovery process in the advanced economies. The International Monetary Fund has expressed some renewed optimism about global growth prospects, but it is clear that growth in advanced economies is entering another period of uncertainty creating fear of double-dip recession. The emerging market economies are showing a contrasting trend of faster recovery. Furthermore, the rising head of inflation expectations in emerging market economies would point to their faster exit from accommodative policies.

Dear Reader,

To continue reading, become a subscriber.

Explore our attractive subscription offers.

Click here

Or

To gain instant access to this article (download).

Pay INR 50.00

(Readers in India)

Pay $ 6.00

(Readers outside India)

Back to Top