On the communication efforts of the central banks in emerging economies: The case of India

The emerging market economies have revamped their monetary policy frameworks and adopted prudent policy communication, bearing in mind their structural challenges. Thus, it is crucial to examine the efficacy of the central bank communication as a policy tool in these economies. This study leverages natural language processing and textual analysis procedures to quantify the tone of the monetary policy statements by the Reserve Bank of India (RBI) – India's central bank, and answer the following questions: Does the tone of RBI's policy communication contain information indicating future policy decisions? Does the stock market respond to the tone of RBI's policy communication? The study answers the above questions and shows that the RBI's policy statements contain forward-looking information about future policy decisions and their effectiveness in manoeuvring the Indian stock market.