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The credit policy announced six times a year is a big event in India. This holds for almost all policies, with the Budget being the biggest engagement. There are myriad views and articles that experts write on expectations and there are plenty of TV discussions on the quantum of the repo rate change, policy stance and forecasts of growth and inflation. In the run-up to an announcement, almost every possibility is expressed by someone, from a 75 basis points rate hike to none at all, each with compelling arguments.

Once the policy is announced, there are pages devoted to its impact, with almost every ‘who’s who’ offering a slice of this analysis. This goes on for days, with bankers being quizzed on the policy impact. Will the rate hike lead to lending rates going up? Will lending fall? Will we enter a recession? Most of these questions have a logical or a non-committal answer, but everyone wants famous names to endorse these banalities. Is this specific to India, or is it a phenomenon everywhere in the world too?

One can look at the world’s three main central banks (i.e. of the US, Eurozone and England), and track what happens there. One commonality is that the credit policy announced 8 times annually is a virtual non-event. There is less of sound and fury, and given that it’s just about the policy rate and some projections of inflation and growth, the discourse there is shorter. The broadcast media has coverage for an hour or so after the bank’s press conference and newspapers have a few columns dedicated to the impact on stocks, bonds and currencies. It is concentrated more on how these markets have been affected immediately, rather than a medium-term view on values.

Therefore, high-intensity policy coverage is peculiar to India and starts from the way in which the discourse is presented. The intensity can be gauged from the time devoted to the Monetary Policy Committee (MPC). In India, this is a 3-day affair, with the final announcement in the morning of the third day. In case of the US Federal Reserve, it is two days, while for the European Central Bank (ECB), since it typically holds meetings every two weeks, a decision declaration is a single-day event. The Bank of England has a process by which data is given to policy committee members one week before, and a discussion ensues. A second meeting takes place on the Monday of the policy week, and a final meeting is on Wednesday before it is released on Thursday. Policies tend to be discussion heavy.

These policy committees are differently structured. Our MPC has six members, three of them from the central bank. The Fed has 12 members, including representatives of all individual boards. The ECB Governing Council is larger, with six executive board members and 19 representatives of member country central banks. The Bank of England’s panel has nine members, including four external members. Hence the Indian MPC is relatively small.

Also the length of the policy statements differ. The latest policy of the Reserve Bank of India has three releases. The first is the governor’s statement, which has 2,856 words. There is the MPC Resolution statement, which runs to 1,155 words. To this, add RBI’s statement on development and regulation measures, which is around 900 words. While there would be overlaps between the first and the other two, this total of 5,000 words is the highest.

This is so because these releases present not just policy actions, but also a fairly detailed view on the state of our economy—headwinds, tailwinds, global developments, etc. Curiously, the governor’s statement is more of a recent phenomenon, as earlier the MPC Resolution would serve the purpose. Therefore, the presentation of the policy also differs from that in the past. The covid pandemic was instrumental in a change in approach, as a lot of assurances had to be provided that could not be done in a formal MPC Resolution statement. Since 2020, the governor’s statement has also been ending with a relevant quotation of Mahatma Gandhi, which was not the case earlier.

The last US Federal Open Market Committee statement, in contrast, had just around 270 words. It offers the action taken with reasons and a brief take on the economy’s future. There are no revisions or mentions of quarterly forecasts, as is in our case. There’s also an implementation note of around 570 words. The Fed focus is its press conference, where a more detailed background is provided before a question-and-answer session.

The ECB too has a short statement of around 800 words which combines both the monetary policy decision and way forward. Here too, the president speaks more before the press conference through preliminary statements that are not more than 1,500 words. The Bank of England’s statement is a little less than 1,000 words; it is to-the-point on policy decisions and the way forward. In India, a large part of what the RBI governor speaks about in his statement is a prelude to the press conference here.

Given the amount of time spent by the MPC in reaching its decisions as well as the wider economic scenario that is deliberated upon, credit policy in India is actually a comprehensive updated analysis of the state of our economy, and is hence of great use to financial markets as it resets the tone for the months ahead. In this way, it is more than just a monetary statement.

These are the author’s personal views.

Madan Sabnavis is chief economist, Bank of Baroda, and author of ‘Lockdown or Economic Destruction?’

 

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