A response by the Reserve Bank of India (RBI) to an appeal filed by Mint under the Right to Information Act has revealed why it does not want its inflation remedy, as stated in its letter to the government on its failure last year to keep inflation in check, made public.
RBI’s latest response attributes its refusal to concerns of market disruption and volatility.
More specifically, the central bank says disclosure would risk unmooring expectations of inflation and impeding the transmission of monetary policy. While secrecy could empower a central bank in odd cases where a policy surprise can help, RBI’s reasoning flies in the face of our experience that economic agents kept well in the loop smoothens the task of macroeconomic management, mostly thanks to the same dynamics that make well-informed markets more efficient.
Moreover, RBI’s capacity to inspire confidence is enhanced by openness, even if its relationship with the government on matters of policy coordination may appear to argue in favour of discretion. Our adoption of an inflation-targeting framework is still an experiment, and it’s important that analysts outside RBI and the government get to analyse its progress closely.
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