With policy statements of 13,000 words, the RBI has become very clear

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The Indian Reserve Bank (RBI) has traveled a long way since monetary policy statements averaged 13,000 words.This is over the average duration of a Masters in Economics thesis and was before the inflation target was accepted in 2016.Since then, according to a latest article released by the Indira Gandhi Institute of Development Research in Mumbai, the central bank is becoming shorter and less complicated in its policy communication.

RBI statements, according to the paper’s writers, Aakriti Mathur, and Rajeswari Sengupta, have averaged 3,084 phrases in the post inflation targeting system, still quite high compared to a Federal Reserve average of about 500.The reading capacity of the statements by the RBI has also enhanced, depending on a amount of one word in the text.The reading capacity of the statements by the RBI has also enhanced, depending on a amount of one word in the text.

The scientists have compared the policy communication with the performance of financial markets and discovered that lengthy, complicated statements have been associated with higher bond volatility in the previous 20 years. In particular, an rise of 1% or approximately 115 phrases in terms of the duration of RBI political declarations associated with an rise of 0.37% of the equity market volatility in the week following the declaration.

In particular, an rise of 1% or approximately 115 phrases in terms of the duration of RBI political declarations associated with an rise of 0.37% of the equity market volatility in the week following the declaration.

“When the statement is on average overly long or too difficult to understand, it would be probable, in our empirical analysis, to have a weak transmission to the financial markets,” the writers say in the study.

It becomes hard for investors to comprehend the role of the regulator for longer, complex interaction on the economy. “This produces more dispersion in the views of the participant which reflects the increased volatility of the financial market,” they said.

The RBI created a six-member Monetary Policy Committee to decide on interest rates every two months with the implementation of the inflation goal. A press conference with the Governor of the central bank and its deputies follows on from the policy declaration soon after.

The RBI also publishes minutes of every meetings two weeks from the case, which reveals how and why each member has voted.