RMA plans to strengthen effectiveness of monetary policy operations

To facilitate sustainable economic growth and ensure macroeconomic stability, the Royal Monetary Authority (RMA) or the central bank will strengthen the effectiveness of monetary policy operations and its transmission mechanism.

“We will work towards improving the monetary policy operations and its framework, strengthening research and policy analysis, and bolstering economic data management practices for effective evidence-based policy making purpose,” states the Druk Nguldrel Lamtoen-2030 document that was launched recently.

To achieve the objectives, it is stated that the central bank will pursue first strategies like adopting next generation monetary policy analysis tools and frameworks.

It states that to signal monetary policy stance to support and maintain price stability, the RMA will review and adopt the latest monetary policy instruments and frameworks.

“We will shift from the implementation of Minimum Lending Rate (MLR) Policy to Market-Based Monetary Policy Operation Framework,” it states.

The document states that supported by a real-time liquidity management system, the new framework will target the short-term interest rate (policy rate) to signal the RMA’s monetary policy stance.

Further, to manage volatility and maintain a desirable level of liquidity in the banking system, an effective liquidity management and forecasting framework will be developed. Other macroeconomic analytical tools and frameworks will be strengthened for efficient policy analysis and decision making.

The second strategy will be on advanced research and policy advocacy agenda.

According to the document, the RMA will promote research to support evidence-based macroeconomic policy-making, especially in the areas of monetary policy, financial sector, external sector and foreign currency management, and other policy issues of national significance.

It states that partnerships with national and international research institutes and central banks will be sought to foster collaborative research and exchange of knowledge. Partnership with central banks in the SAARC region will be particularly important to exchange knowledge and keep abreast of emerging financial and economic issues in the region.

In order to inform the national policy planning and decision-making process, it is stated that the RMA will share their research and economic policy analysis results in appropriate forums.

The third strategy will be to build research and data analytical capabilities. The central bank will endeavor to ensure that the research it undertakes and policy advice it provides are credible, professional, and unbiased. 

It states that a team of technically competent and specialized professionals will be built to conduct quality research and analysis.

“We will build the capacity to implement new monetary policy frameworks, and conduct research, data analysis, and macroeconomic modeling using advanced statistical tools,” states the document.

The central bank will also implement effective macroeconomic research as informed decision-making hinges on the availability of high-quality and up-to-date data.

“This is where the state-of-the-art Data Warehouse, an automated system currently being developed in the RMA, will play an important role. We will incorporate detailed granular data such as time-series data, cross-sectional data, and panel data in the Warehouse for economic and policy analysis,” states the document.

The roadmap document states that in order to achieve their aspiration and mission, the central bank has adopted the thrust areas, pillars and enablers framework.

“Thrust areas are the main thematic areas that represent national and macro-level goals and strategic policies. Thrust areas encapsulate the RMA’s mandates and the strategic areas where the RMA expects to contribute to the achievement of the national vision and goals,” states the document. 

Dechen Dolkar from Thimphu