The Reserve Bank of India (RBI) is mulling the option of making its regular monetary policy reviews a more frequent affair than the quarterly mode at present. Keen to restore the waning elasticity of its policy stance to the altered dynamics of the globalised world of money and finance,the central bank is looking at the western model of once-a-month to six-weekly huddling together to decide on interest rates and other policy instruments. The RBI move comes at a time when monetary authorities across the world have already adopted a much more coordinated approach to policy than ever before,following the global economic crisis which kept all of them on their toes. Monetary authorities in advanced economies meet much more frequently than RBI for policy reviews. According to official sources,the RBI has already conveyed its views on changing the frequency of its regular policy reviews to the government. The RBI has resorted to inter-policy rate hikes thrice since the October 2009 quarterly review,but there is still a significant lag between its policy response and what it is meant to achieve. The Federal Open Market Committee (FOMC),a wing of the US Fed Reserve and the main organ of the countrys monetary policy,meets eight times a year for regular policy review,besides its rather frequent special meetings and telephonic conferences. The European Central Bank formulates its monetary policy once in a month,while its governing council meets fortnightly. The Bank of Englands Monetary Policy Committee meets for two consecutive days every month. The RBI move is in the overall interest of providing the right amount of money supply for the nation to ensure growth with stability the stated goal of the monetary authority. Chiefly,two factors have prompted the RBI to consider increasing the frequency of its monetary policy reviews. One,the increased volatility of macro-economic variables in the post-financial meltdown global economy and two,the perceived inconstancy of the way monetary policy tools interact with financial markets. Moreover,a change in inflation dynamics has also caused the RBI to rethink policy frequency. Analysts have started noting that rather persistent high inflation that India currently witnesses and the situation in other developing economies are rather dissimilar. Unlike in 2008,global commodity prices have much less to do with the Indias high inflation. Besides,the inflation is now also caused by demand-side pressures resulting from high nominal income growth. Also,it co-exists with relative strengthening of the rupee against other currencies. The RBI also reckons that interest rates have to be reviewed more frequently as billions of dollars are being shifted out of US money-market funds to emerging market equities and debt,including corporate bonds that India is giving an impetus to in its bid to deepen its markets. Analysts reckon that quicker policy responses could help reduce the volatility of bond and exchange rate markets. However,there is apparently no consensus yet on whether the RBI should immediately move towards a regime of more frequent policy reviews. Monetary policy always comes with a lag,although the western authorities take reviews much more frequently and puts the analytic behind the decisions public for greater transparency. Interest rates impact the western economies more profoundly as they are much more leveraged, said Abheek Barua,chief economist,HDFC Bank. Apart from frequent policy reviews,monetary authorities in the west are also slightly more consultative in their approach. The governor of the Bank of England,for instance,writes an open letter to the Chancellor whenever the inflation target (2%) is missed by more than one percentage point on either side,explaining the reasons for the same. The FOMC minutes are published for public debate. Similarly,after each fortnightly meeting of the ECB governing council,a statement is issued on the outcome of discussions and the bank president holds a press conference. Of course,RBI issues a monthly bulletin,but its decision-making process might not be as transparent as FOMCs or Bank of Englands. With the macro-economic and monetary developments being more dynamic and the global situation rather uncertain,it might be of help if the RBI assesses the situation on a more frequent basis, said Crisil chief economist Dharmakirti Joshi.
