A recent report by the State Bank of India (SBI) has examined an alternative monetary universe where the colour of the RBI Governor’s necktie can indicate whether new changes are forthcoming.
Who said that fashion is something limited only to the media or entertainment sector? In fact, our very own often thought of as dreary sector of finance may also have fashion choices that can indicate upcoming changes.
But is that just something to be taken in jest, or could it have some real-time basis?
Is There Truly A Link Between Tie Colours And Policy Change?
Recently, SBI Research published a report called “The Monetary Multiverse”, in which they took a look at an alternate universe where “monetary policy isn’t just data-driven, fashion-fueled, text-mined and trend-sensitive.”
The report takes a look at the possibility of the colour of a necktie, the tone of a speech and the public engagement shaping the future of interest rates.
As a disclaimer, the report does encourage that everything mentioned in the report be taken on a lighter note and with a pinch of sugar.
Among the things that the report mentions are how the necktie colour of a Reserve Bank of India (RBI) Governor could provide a subtle clue before monetary policy decisions, rate decisions and more.
The SBI report starts this out by writing, “In this alternate universe, monetary policy doesn’t just follow inflation or GDP, it follows the Governor’s wardrobe. When repo decisions are made, it’s not just models and mandates that matter, but the shade of silk around the RBI Governor’s neck.”
The section called “Necktie Nomics: When Fashion Meets Fiscal Signal” had the team analyse the colour of the RBI Governor’s necktie worn during MPC announcements.
According to the report, this was to observe if the tie colour had any correlation with policy direction.
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The neckties were placed in 4 tone categories, with each tone representing a different colour and what they could mean based on “established psychological and visual perception theory.”
These included: Warm (reds, peach, coral, orange), Cool (blue, light blue, royal blue, aqua), Dark (black, dark blue, black with silver), and Mixed (purple, yellow).
SBI then designed the Tie Volatility and Tilt Index (TVTI) that would measure the directional signal and its consistency for each tone. The findings after calculations based on the index were that:
- Warm tones were seen as hawkish, more likely to be related to rate hikes.
- Cool tones indicated a neutral mode, no change in report rates.
- Mixed tones indicated mixed outcomes, with the lowest in predictability, but high volatility in policy outcomes.
- Dark tones were less about direction, instead signalling decisive moves, where a decision was imperative. The report also added that “in the uncertainties besieged world, Dark looks more associated with decisiveness as it clearly happened in the recent jumbo rate cut of 50 bps.”
This could be referring to the recent surprise 50-basis-point (BPS) cut announcement made by RBI Governor Sanjay Malhotra last month while wearing a dark-coloured tie.
It’s not just the necktie colour that can indicate a shift; specific words used in speeches can also do so. As per the report, when speeches given by the RBI Governor were put through a text analysis, certain words would start appearing right before a change.
One such example was seen with a jump in the use of the word ‘growth’ instead of ‘inflation’ being used more frequently in the Governor’s speeches, which could “reflect a real shift in the central bank’s priorities.”
The report further stated that “When words like ‘growth’ become larger than ‘inflation,’ it signals a clear shift in focus, often followed by a change in policy stance like in case of recent 50 bps jumbo cuts… In June policy the word was mentioned 24 times.”
So while there might actually be no secret link between the colour of an RBI Governor’s necktie and policy changes, it also cannot entirely be dismissed that the colour could be chosen subconsciously, and even potentially provide some hint in interpreting central bank behaviour.
Image Credits: Google Images
Sources: Mint, Hindustan Times, Moneycontrol
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This post is tagged under: RBI, RBI tie, RBI fashion theory, RBI tie colour, RBI Governor, Indian state banks, Reserve Bank, RBI Policy, sbi, sbi research, sbi necktie theory
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