Monetary Policy: Financially inclusive will result in policy effectiveness, says RBI Deputy Governor

The country's monetary policy is, by design, financially inclusive and this strategy will result in policy effectiveness and welfare maximisation going ahead, Reserve Bank of India's Deputy Governor Michael D Patra said on Friday.

Financial inclusion appears to have gone up, with the level of the RBI's financial inclusion index rising from 49.9 in March 2019 to 53.1 in March 2020 and further to 53.9 in March 2021, Patra said at an event organized at Indian Institute of Management (IIM), Ahmedabad.

"The evidence is still forming and strong conclusions from its analysis may be premature, but India's monetary policy is, by design, financially inclusive and it will reap the benefits of this strategy in the future...," he stated.

An economy with all consumers financially included would expect to experience less output volatility due to lower consumption volatility. In an economy with financially excluded consumers, monetary policy has to assign a greater weight to stabilising output, he said.

Patra said going ahead as financial inclusion rises even further in India, consumption volatility as a source of output volatility can be expected to wane.
This will provide headroom for monetary policy to remain focused on minimising inflation volatility, which brings welfare gains for all, he added.