A second, and related, dilemma is how to ensure that the market correctly appreciates the conditionality and does not interpret the guidance as an irrevocable commitment. 27. Starting early 2010, in keeping with the best practice, the Reserve Bank too has begun giving forward guidance. And as expected, we too have confronted the classic communication dilemma. Let me illustrate.
In the First Quarter Review of July 2011, we said: “Going forward, the monetary policy stance will depend on the evolving inflation trajectory, which in turn, will be determined by trends in domestic growth and global commodity prices. A change in stance will be motivated by signs of a sustainable downturn in inflation.” 28.