- The RBI governor's necktie colour may indicate upcoming monetary policy decisions in India
- Warm tie colours like red and orange are linked to hawkish policies and rate hikes
- Dark tie colours such as black suggest decisiveness, seen in the recent 50 bps rate cut
Economists across the globe have to crunch numbers to predict the policy decisions by central banking institutions, but new research by the State Bank of India (SBI) suggests that there might be a simple methodology, especially in the Indian context. The colour of the necktie worn by the Reserve Bank of India (RBI) governor could hint at the upcoming monetary policy decisions.
The report posits that in an alternate universe, the 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," reads the lighthearted report under the section, Necktie Nomics: When Fashion Meets Fiscal Signals.
The report draws on psychological theory and past policy announcements to examine whether there could be a pattern between necktie tones and interest rate actions. It breaks down the tie colours worn by the RBI governor into four tone categories:
- Warm: Red, peach, orange, coral
- Cool: Blue, aqua, light blue, royal blue
- Dark: Black, dark blue, black with silver
- Mixed: Purple, yellow
While the warm neckties are tied to hawkish policies, leading to rate hikes, the dark tones suggest more decisiveness.
"In the uncertainties besieged world, Dark looks more associated with decisiveness as it clearly happened in the recent jumbo rate cut of 50 bps," the report highlighted.
As for cool tones, the monetary policies remain unchanged, while mixed colour neckties were deemed the least predictable, with the highest variation in outcomes.
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Tie Volatility Index
The report then introduces the Tie Volatility and Tilt Index (TVTI) -- a metric blending a tone's average policy direction with how consistently it points that way.
The report acknowledges its own light-hearted nature, noting that these findings should be "taken with a pinch of sugar". It adds that when certain words like "growth" start appearing in the governor's speeches, instead of "inflation", it hints towards a real shift in the central bank's priorities, translating into action.
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