Communication Strategy, Central Banking and Credibility Bonus - A Study Dealing with 'Impossible Trinity' in Indian Context

The Communication strategy for central banks is traditionally interlinked with one of their important mandates – conduct of monetary policy. Credibility to central bank actions in the process is achieved by keeping the market expectations more closely synchronised with its own, through the art of communication. However, the management of “Impossible Trinity” in the context of Emerging Market Economies expands the scope of communication strategy of central banks to horizons other than the conduct of monetary policy. The paper, therefore, examines a pertinent research question - How did the management of “Impossible Trinity” impact the communication strategies adopted by Reserve Bank of India (RBI) and the credibility of its actions amongst the market participants? The paper reviews the RBI’s efforts to demystify its policy stances since past few years under the policy options thrown up by the impossible trinity and its perceived impact on market participants. The Case study, drawn from existing academic literature, variety of RBI publications and speeches of RBI senior officials, review of media reports, can constitute an important contribution to the emerging research area in the South Asian central banking.