........The direction of policy also remains confused. Should banks raise deposit and lending rates in response to the monetary policy, or lower them? Should businesses make plans expecting lower inflation and higher interest rates, or should they expect higher inflation and lower interest rates? The policy states that changes can be made anytime, and not only on policy days. Rajan's view, that India is prepared for the Fed tapering after the recent steps, suggests currency markets will remain shallow and businesses may see large volatility in them. Good communication is crucial to managing expectations and monetary policy must convey what the targets, instruments, and direction of policy are going to be.
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