In the past, economists had often said that the RBI was not being precise in its core communication about the direction of the monetary policy. When the Feb-25 policy was announced, there was no doubt there will be another rate cut in April. Now in April, it is almost certain that there will be a third rate cut in the month of June. What has triggered this sudden shift in making the monetary policy more precise and focused in its communication of message to markets?

For a $4.1 trillion economy, it is still the RBI that controls the monetary levers. It is, therefore, essential that the RBI does communicate its monetary stand in a precise and unambiguous manner. That was evident in the April and June policy statements, when the new RBI governor put across his trajectory of the market in very precise terms. In June, the RBI showed confidence in its data analysis and went and cut the inflation and the GDP growth estimates by 20 bps each. Also, the RBI pre-emptively changed the monetary stance to Accommodative, when a mere rate cut could have done the job. That shows more decisiveness. 

It is good that, in a way, the RBI has taken a leaf out of the Fed rule book, and made its communication to markets very precise and conclusive. In the current market conditions, when there is substantial trade and fiscal uncertainty, the best the central bank can do is to offer some clarity on the monetary area. If one reads through the fine print of the June monetary policy and minutes, what comes out is a central bank that is willing to bet on the quality of its data and its analysis and is not only willing to take long-range decisions, but also able to communicate them clearly. There is a very clear message in June on inflation, growth, bond yields, and the trajectory. 

After persistent demands, the Indian government will start giving out monthly unemployment data with notes on job additions, the way US Bureau of Labor Statistics puts out each month. That will be a data add for economic analysis. There are 3 more things the RBI can also consider. Along with the minutes, the RBI can also release a dot-plot chart of individual member perceptions of key macro data points like inflation, GDP, core inflation, jobs etc. Secondly, it is time the RBI also starts to update the key macro data points on a quarterly basis. Lastly, a longer-term sort of policy perspective will also add value. For now, the RBI has made a very good start!