RBI will review monetary policy every six weeks

Moving in line with the global practices and keeping pace with the fast-changing changing monetary environment,the Reserve Bank of India has decided to undertake mid-quarter review of the monetary policy. This means the central bank will review its monetary policy every six weeks and take appropriate measures. In an initiative to make structural changes in the liquidity management,the RBI has proposed to set up a Working Group to review the current operating procedure of monetary policy of the Reserve Bank,including the liquidity adjustment facility (LAF).

Currently,scheduled policy announcements are made once in a quarter. In a rapidly evolving macroeconomic situation,however,a gap of a quarter between policy reviews can be too long. In recent years,there were several occasions (April,June and September-December 2008; January and March 2009; and March and July 2010) when the RBI had to take off-cycle policy actions in response to macroeconomic developments. “While these instances challenge the discipline of the quarterly schedule,they also underscore the need for flexibility. Many major central banks in the world make monetary policy announcements more frequently ranging generally from 8 to 12 announcements in a year. It is,therefore,proposed to formalise what is already an informal,internal process,” RBI governor D Subbarao said.