Monetary Policy Communication and Financial Markets in India
IMF Working Papers, October 28, 2022
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- Monetary Policy Communication and Financial Markets in India
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Bibliographic details
- Authors: Faisal Ahmed, Mahir Binici, Jarkko Turunen
- Published: October 28, 2022
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400224430.001
Summary and context
- Forward-looking monetary policy communication is a key element of flexible inflation-targeting regimes across advanced and emerging market economies.
- The Reserve Bank of India’s implementation of a flexible inflation targeting framework since 2016 has been supported by a broad set of communication tools.
- Recent policy innovations examined include forward guidance on policy rates and asset purchases, which have increased the predictability of monetary policy.
- A review of innovations during the initial waves of the pandemic suggests forward guidance likely played a key role in moderating uncertainty and supporting some asset prices.
- The analysis finds the relationship between monetary policy surprises and yields for government and corporate securities across all maturities are positive and statistically significant.
- The results support an important role for monetary policy communication in guiding market expectations about the monetary policy stance, including the likely path of policy interest rates.
Key findings (enumerated)
- RBI’s flexible inflation-targeting framework implemented since 2016 is supported by broad communication tools.
- Policy innovations studied: forward guidance on policy rates; asset purchases.
- Forward guidance likely moderated uncertainty during the initial pandemic waves and supported some asset prices.
- Monetary policy surprises have a positive and statistically significant relationship with yields for government and corporate securities across all maturities.
- Monetary policy communication is important for shaping market expectations about the policy interest rate path.
Subject areas and keywords
- Subject: Asset prices, Central bank policy rate, Financial services, Inflation, Inflation targeting, Monetary policy, Monetary policy communication, Prices
- Keywords: Asset prices, asset purchase, Central bank policy rate, communication, forward guidance, Global, India, Inflation, inflation targeting, inflation targeting framework, inflation-targeting regime, Monetary policy, monetary policy announcement, Monetary policy communication, monetary policy surprise
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- Working Paper