Frequent policy reviews reduce need for off-cycle actions: RBI

Reserve Bank of India governor D Subbarao has said that more frequent scheduling of policy reviews reduces the need for off-cycle action and thereby minimises the surprise element. “Both on the way up to the crisis and on the way down, we had to make several ‘off-cycle’ policy adjustments. There was wide agreement that these measures were expedient; nevertheless they did not go down well with the market because of the surprise element,” Subbarao said at an event in New Delhi. “This has prompted us to revise our communication strategy by introducing, with effect from September 2010, more structured scheduled mid-quarter reviews. While we have not surrendered our flexibility to take policy action as and when warranted, more frequent scheduling of policy reviews reduces the need for off-cycle action and thereby minimises the surprise element,” he said. “In calibrating the exit from the expansionary monetary stance of the crisis period, RBI has been struggling with growth-inflation dynamics over last one year. By the time of second quarter review in early November 2010, we had already raised policy interest rates five times,” he said, adding, “the central issue before this policy review was whether we should continue on the tightening spree.”