RBI’s ‘Stance’ Is Still Standing; But Should It Be Retired For Good? 

It may be time to re-evaluate the relevance of the Reserve Bank of India’s so-called ‘stance’ on monetary policy. A former Monetary Policy Committee member Jayanth Verma openly admitted he had no view on the phrase ‘withdrawal of accommodation’, simply because he did not understand what it meant. If members of MPC themselves find the phrasing baffling, what hope does the broader public have? 

The minutes of the MPC’s April meeting suggest such ambiguity endures, albeit in a milder form. 

Current member Saugata Bhattacharya also hesitated over endorsing a change in stance to accommodative, saying, “I associated a neutral stance with flexibility…[but] it was clarified that the change in stance signals only that ‘a rate hike is off the table’.”  

The clarification, however, raises a fundamental question: why not articulate that directly? 

Needless Opacity
There appears to be little justification for retaining such mystification in a domain already cluttered with arcane phrases and acronyms (at least to people outside the markets). Why insist on a nebulous concept, only to later clarify the semantics?

A central bank’s real ‘stance’ is best discerned through its actions, its post-policy press briefings, and its macroeconomic forecasts.

The US Federal Reserve, for example, uses the term ‘stance’, but only as a summary of its measures and forecasts. It is not a separate “variable” demanding analysis. 

Historically, deliberate mystification in central bank communication was sometimes used as a tool. Former Fed Chair Alan Greenspan once famously quipped, “I know you think you understand what you thought I said but I'm not sure you realise what you heard is not what I meant.” His defence of cryptic communication was that it created “constructive ambiguity,” helping prevent one-sided bond market positioning.

But that era is over. 

The Great Financial Crisis of 2008 and Ben Bernanke’s term marked a shift towards clearer communication and transparency that other central banks followed. Against this backdrop, the RBI’s attachment to its ‘stance’ and the Indian market’s fretfulness over it seems incongruous with the quest for clarity. 

Monetary policy is not a rocket science; it works best when it is widely understood. In a developing economy, the central bank’s message must reach beyond the narrow circle of bank treasury-wallahs and economists fluent in policy argot. Lenders and borrowers must understand why their EMIs rise or deposit rates fall. That understanding is central to how monetary transmission affects inflation expectations and consumer behaviour.

Plain Speak
Would jettisoning the ‘stance’ compromise forward guidance? For one thing, the era of constant uncertainty—economist Michael Spence calls it “permacrisis”—seems to be the norm going forward. In such an environment, forward guidance has a short shelf-life. 
Data-dependent policy decisions are inconsistent with credible long-term forward guidance. Given the current global situation, the RBI can, at best, specify what it will do in the next policy alone. 

Even as some economists and MPC members characterise the current global trade shock as deflationary, one cannot easily forget the misjudgments of the COVID era. Then too, policy was guided by assumptions that demand destruction would be severe, and inflation, if it appeared, would be transient. That view aged poorly.

In a volatile world, the RBI’s most credible ‘stance’ is its ability to respond dynamically to evolving conditions. Strip away the jargon; state intentions plainly. The pretence of steady, long-horizon signalling only complicates the message. As Bhattacharya implies, a ‘neutral stance’ is synonymous with flexibility. Why not just say so?