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 theirimportant mandates – conduct of monetary policy. Credibility to central bank actions inthe process is achieved by keeping the market expectations more closely synchronisedwith its own, through the art of communication. However, the management of“Impossible Trinity” in the context of Emerging Market Economies expands the scope ofcommunication strategy of central banks to horizons other than the conduct of monetarypolicy. The paper, therefore, examines a pertinent research question - How did themanagement of “Impossible Trinity” impact the communication strategiesadopted by Reserve Bank of India (RBI) and the credibility of its actions amongstthe market participants? The paper reviews the RBI’s efforts to demystify its policystances since past few years under the policy options thrown up by the impossible trinityand its perceived impact on market participants. The Case study, drawn from existingacademic literature, variety of RBI publications and speeches of RBI senior officials,review of media reports, can constitute an important contribution to the emergingresearch area in the South Asian central banking.