interest rates and moral suasion. 5. monetary policy during the 1970s and 1980s was constrained by fiscal dominance, automatic monetisation of budget deficits and excessive growth of monetary aggregates. the large scale deficit financing and the resultant high monetary and credit expansion led to inflationary pressures which were further exacerbated by a series of shocks, namely, the indo - pak war of 1971, the drought of 1973, the collapse of the bretton woods system in 1973, and global oil price shocks of 1973 and 1979. these events precipitated the adoption of “ monetary targeting with feedback ” as a formal monetary policy framework in 1985. money supply ( m3 ) became the intermediate target with the objective of controlling inflation. this approach to monetary policy was recommended by a committee led by prof. sukhamoy chakravarty, a distinguished faculty of delhi school of economics. 1 in this framework, the reserve bank aimed at controlling the growth in money supply commensurate with the expected real gdp growth and a tolerable level of inflation. the cash reserve ratio ( crr ) was used as the primary instrument for monetary control, with both crr and statutory liquidity ratio ( slr ) reaching their peak levels by 1990 due to continued fiscal dominance. 6. the deteriorating external balance position in the backdrop of adverse geo - political developments and domestic macroeconomic imbalances in the 1980s, and the resultant balance of payments crisis in 1991, triggered large scale structural reforms, deregulation of the economy, financial sector liberalisation and a shift towards market determined exchange rate. in the wake of trade and financial sector reforms and the consequent rise in foreign capital flows and financial innovations, the efficacy of broad money as an intermediate target came under scrutiny around mid - 1990s. 2 at the same time, there was a notable shift towards market - based financing for both the government 1 report of the committee to review the working of the monetary system ( chairman : dr. sukhamoy chakravarty, 1985 ). 2 working group on money supply : analytics and methodology of compilation ” ( chairman : dr. y. v. reddy, 1998 ). and the private sector. in this environment, a multiple indicator ( mi ) approach was adopted in april 1998 as the new framework of monetary policy. under this approach, a host of indicators constituted the information set used for monetary policy formulation. 3 the restrictions on primary financing ( 1997 ), 4 enactment of the fiscal responsibility and

of our conventional and non - conventional measures during the pandemic. at the height of the pandemic during 2020 and 2021, the mpc prioritised growth over inflation. in fact, when inflation was above the upper tolerance level of 6 per cent in july - august 2020, we provided both state - and time - based forward guidance of continuing with the accommodative stance of monetary policy, as output remained well below its pre - pandemic level. besides, our forecast also showed that inflation was likely to soften gradually. 27 in the second half of 24 see financial stability report, reserve bank of india, june 2023. 25 blinder, a. s., m. ehrmann, m. fratzscher, j. de haan, and d. j jansen. ( 2008 ). “ central bank communication and monetary policy : a survey of theory and evidence. ” journal of economic literature 46, pp 910 – 45. 26 speaking to a subcommittee of the us congress, november - december 1987. 27 see mpc resolution and governor ’ s statement of october 9, 2020. 2020 - 21, inflation eased in line with our assessment. in the tightening phase, which commenced in april - may 2022, the scale and nature of communication has been appropriately fine - tuned and calibrated to ensure successful transmission of policy rate hikes. the focus has been on anchoring of inflation expectations by emphasising our firm commitment to re - align inflation with the target. overall, central bank communication has to be balanced – too much of it may confuse the market while too little may keep it guessing. we tread a very fine line and constantly endeavour to refine our communication strategies. conclusion 23. monetary policy framework in india has evolved in line with the developments in theory and country practices, the changing nature of the economy and developments in financial markets. within the broad objectives, the relative emphasis on inflation, growth and financial stability has, however, varied across monetary policy regimes since independence. 24. our experience during the inflation targeting regime provides some useful lessons for the conduct of monetary policy. first, being proactive and nimble footed during a crisis gives one the ability to respond speedily to fast paced and overwhelming developments. second, policy measures should be prudent, targeted and calibrated to the need of the hour without being tied down by any existing dogma or orthodoxy. third, monetary policy actions – when needed – should be backed