If simplicity is the greatest form of sophistication, Raghuram Rajan has been doing just that by making small and nuanced changes in the policy document, to the delight of seasoned policy watchers and even those who are trying to de-code it for the first time.
Rajan's intention of presenting a clear and precise policy document that clearly lays out the road map for future monetary actions builds on the policy framework he outlined when he took charge of the governor's office.
His first major policy statement comes straight to the point and begins with the current changes the Reserve Bank of India (RBI) has effected in the monetary stance. The policy document states upfront what the RBI has decided to do, that is raise the repo rate by 25 basis points, cut the MSF rate by 25 basis points and provide additional liquidity through the 7- and 14-day repo window.
Gone is the long-winding economic statement that usually precedes actual monetary actions. The earlier practice was to mention the changes in monetary measures towards the end, after a detailed dissection of the current economic conditions, the way the economy was progressing and how the previous measures were impacting the economy.
The governor has also done away with providing the outlook for the economy, stating this is a part of the Macroeconomic and Monetary Development Report that precedes the policy. “We got feedback earlier that the policy document was too long, so we shortened it,” said the governor in the post-policy press conference. The half-yearly policy document this time is all of 13 pages, compared to 30 pages of last year’s policy.
Policy watchers observe that some of the macroeconomic numbers are already mentioned in other parts of the policy documents. Says R Sivakumar, head of fixed income, Axis MF: “What they are looking at is the evolution of growth and to that extent it’s fair, otherwise the policy document was becoming fairly long.”
Rajan has also spelt out clearly the reasons for the change in monetary measures, in the second part of his speech. He has also talked about whether there will be additional measures that are going to be taken or not. And, finally, manage the expectations of the market with clear initiatives.
Policy watchers are saying the language changes in the policy document are direct and simple, in keeping with his style of communication. Market watchers also agree that he is putting out a roadmap for further monetary action signalling a consistent stance.
Says Dharmakirti Joshi, chief economist, CRISIL: “There has been a consistent improvement in policy documents and it's an evolving process. The policy now is giving a clear direction and managing of expectations is coming out clearly.”
In another significant change from the past, the RBI has done away with issuing “guidance” of future monetary actions that it could follow. Rajan also introduced the CPI (Consumer Price Index -based) inflation projections along with the WPI (wholesale price index-based) projections. The RBI is expected to focus a lot more on the CPI in the coming months.
Rajan has made other changes, too. Gone are the 15-minute post-policy “exclusive” interviews with each of the newspapers. Instead, the governor opted for a half an hour “exclusive” session with the entire print media.