RBI's Mixed Messages

Business Recorder reported that the Reserve Bank of India has faced criticism twice recently over its messaging. A dollar deposit scheme launched in June to draw foreign currency was shut a month early, only a week after Governor Sanjay Malhotra said no early closure was being considered. With no target or costs specified, markets had assumed it would run its full term, so the abrupt closure unsettled currency and bond markets.

Minutes from the August policy meeting also read differently from the rate decision. Markets had taken the meeting to mean no rush to lift rates, but the minutes showed officials already weighing tighter policy, with Malhotra noting that rising headline and core inflation could call for a policy rate adjustment. SBI chief economist Soumya Kanti Ghosh pointed to a clear mismatch across the deposit move, the policy statement, the press conference and the minutes.

Ghosh said central banks worldwide are navigating a difficult communication environment. The US Federal Reserve, under new chairman Kevin Warsh, has mostly avoided forward guidance and skipped the dot plot investors use to judge future rates. RBI Executive Director Indranil Bhattacharyya argued that framework guidance, focused on how the bank's inflation approach shapes its moves, offers a better guide to future decisions, yet the 2% to 6% tolerance band around the 4% target leaves markets guessing.