Published: Wed, October 31, 2018
Money | By Arnold Ball

Autonomy of RBI essential, nurtured by govt: Finance Ministry

Autonomy of RBI essential, nurtured by govt: Finance Ministry

It's not the first time that the Reserve Bank of India has had a run-in with the Centre, and it certainly won't be the last. "We appeal to all right-minded people and experts to speak out and persuade the government to amend, and let RBI do its jobs in an unfettered was as per statutes, mandates, practices".

Government said that it holds "extensive consultations" with the central bank from time to time. Government officials were left unhappy with Archarya's speech.

In open letter, All India Reserve Bank Employees Association says govt must desist from nibbling at central bank's autonomy and let it do its job in an unfettered way, else it will incur the wrath of financial markets. Delivering the AD Shroff memorial lecture on Saturday, Acharya said governments that did not respect their central banks' independence would sooner or later incur the wrath of financial markets. "I am surprised that at that time, the government looked the other way, the banks looked the other way". Or in other words, the court pointed out that it could be used to force central bank to dilute its stricter bad loan rules for the power sector. It was a regulator of these. They also said RBI stand on technical issues is undisputed. It had weakened as much as 74.15 after news reports suggested that the government had invoked Section 7 of the RBI Act to direct governor Urjit Patel on issues related to liquidity for non-banking finance companies, capital for weak banks, and lending to small and medium enterprises.

Reserve Bank of India Governor Urjit Patel may consider resigning from his post given a breakdown in relations with the government, TV channels reported on Wednesday, sparking a sell-off in the rupee and bonds.

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But what caused Viral to make the comment?

"One needs to see who are the stakeholders in these consultations sent to RBI". Given this, there need not be any change in a well-functioning system.

However, the statement did not mention about the government citing the never-before-used power of issuing directions under the Act to RBI governor to seek a resolution to differences with the Central bank. The government believes that easing restrictions will boost lending and increase growth. The Centre, in an indirect attack, said that it was worrisome that no red flags were caught. Governments that do not respect central bank independence will sooner or later incur the wrath of financial markets, ignite economic fire, and come to rue the day they undermined an important regulatory institution; their wiser counterparts who invest in central bank independence will enjoy lower costs of borrowing, the love of global investors, and longer life spans.

The letter said, "Even the RBI board is being sought to be stuffed in a particular direction which would prompt the discerning people to look askance, and make it hard for RBI to frame policies".

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