RBI monetary policy trapped in ‘chalk and cheese’ problem: SBI report

RBI's Dueling Signals: 'Chalk and Cheese' in Monetary Policy Communications

A report by SBI Research has flagged a notable divergence in the Reserve Bank of India's (RBI) recent communications, likening the situation to a 'chalk and cheese' problem. The analysis, authored by Dr. Soumya Kanti Ghosh, Group Chief Economic Adviser at the State Bank of India, was reported in articles published by Free Press Journal and Lokmat Times on Monday. According to the report, the RBI's monetary policy minutes, its policy press statement, and Governor Sanjay Malhotra's statement for August — and even earlier months — present 'clear yet divergent signals' despite originating from the same institution.

Dr Ghosh described this as a communication puzzle emerging from the RBI's latest policy cycle. "This is precisely the communication puzzle emerging from the RBI's latest policy cycle: the latest MPC minutes appear more hawkish, keeping inflation risks and the possibility of further tightening in focus while the Governor's statement sounds considerably more patient and data-dependent," he argued.

The 'Chalk or Cheese' Dilemma for Markets

The report highlighted that the divergence is especially pronounced in the categories of 'policy and rates' and 'inflation and prices'. This suggests that the minutes attach greater weight to risks that are most relevant to the future rate trajectory, whereas the Governor's communication tends to attenuate these concerns, giving relatively greater weight to growth and financial conditions.

To quantify this, the report proposed a macro tone index. As Dr Ghosh explained, "if the Governor statement is indexed to 1, the MPC minutes statement is at 1.76 in June 2026 and it rises further to 1.82 in August 2026. A higher number relative to 1 indicates more hawkishness."

For markets, the report states, this creates a 'chalk or cheese' problem, where the hawkish undertone of the minutes may be interpreted as indicating that an October rate hike remains on the table, while the Governor's communication points to a more cautious wait-and-watch approach.

Delicate Balance: US Economy and Monsoon Risks

The SBI report notes that while the window for a rate hike has opened, the decision still "hangs in a delicate balance" due to two primary reasons. First, the US economy is showing resilient growth, driven by consumer spending and investment in artificial intelligence, but faces notable downside risks. Second, in domestic conditions, the progress of the monsoon is erratic and highly uneven.

According to the report, it may be more important to address monsoon risks through carefully crafted domestic policies that focus on rural economy concerns.