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I think Raghuram Rajan had alluded to the impending September 20 monetary policy meet. The RBI's number one priority could be to just dispel some of the excessive doom and gloom which prevail. He mentioned it, the Finance Minister also mentioned it in Parliament. Very clearly, the financial markets have got to the man on the street, the business man, the consumer, the investor, the saver and everywhere.
So, what we might get at the policy date is a communication of the Indian economy going through a difficult time and there can't be any false optimism. However, we certainly should not have false pessimism either. That will be the overall construct in which the policy will be made.
In terms of specific measures we all know that the main event coming up between now and our own policy is the FOMC where we will get the much needed clarity now on details of the tapering whatever they be.
The main determinant of the policy direction in terms of any change would be how the forex market is behaving between now and then, how the Fed lays out its plan.
However, while he has obviously emphasised the priority of inflation over other objectives of the central bank, in the press conference as well as in earlier statements, one can clearly make out that there is a belief that if one does the right things to reinvigorate growth and investment activity, a lot of other things just fall into place thereafter as far as the financial market stability is concerned.
I think one has to step back a little bit. There was a recent 150 years or some commemoration ceremony in Delhi where even the Prime Minister had referred to the fact that when he took over as a governor, he had set up a committee and asked Dr Chakraborty to look at the framework of the monetary policy and this is a continuum thereof and the words used there were maybe in a globalised economy maybe the conventional monetary policy tools and instruments and outcomes expected perhaps need to be reviewed and reassessed. I think this is in that context and perhaps the context that in the immediate environment is there has been a fair amount of talk and criticism that the steps adopted by Reserve Bank of India (RBI) in a globalised world which we are operating now to stem some of the currency weakness have possibly not had the intended effect on the currency side but have clearly caused damage possibly growth prospects and other financial markets. So I think it is in that context that this committee has been set up, I don't think it has got a next three-six months, this will lay the frame of a possibly policy making for the next many coming years. Whether they move to a committee or they still continue with the current system, everybody recommends but the final decision is only of one-man which is the governor's. I don't think it is very easy for everyone to make a comment because ultimately it is for the governor to decide whether he is comfortable with that situation or not. I am not even sure, how the act or the RBI act provides for these things. As far as the general desirability of moving to a committee system you would think that yes, most of the central banks around the world increasingly are moving to that situation where possibly the governor's vote is the first amongst equal kind of a situation but from the statement that we read, I would not jump to a conclusion either way.
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