Govt may have invoked law to issue directions to RBI
Govt may have invoked law to issue directions to RBI
FM, RBI Governor to come face-to-face at FSDC meet
31 October, 2018, 08:29
It reads: "The Central Government may from time to time give such directions to the Bank as it may, after consultation with the Governor of the Bank, consider necessary in the public interest".
Indian government officials are very upset with the central bank for publicly talking about a rift with the government, fearing it could tarnish the country's image among investors, senior officials said on Monday.
There is an "irreversible breakdown between RBI governor and the government", one of the source added. Yet, with elections looming later this year and next, Prime Minister Narendra Modi's government is keen to ensure lenders extend credit as rising oil prices and a currency slump hurt Asia's third-largest economy.
"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", Acharya said.
Tensions between the RBI and the government have spilled into the public domain after Deputy Governor Viral Acharya said last week that undermining central bank independence could be "potentially catastrophic", indicating the authority is pushing back against government pressure to relax its policies and reduce its powers ahead of a general election due by May.
On Tuesday, Finance Minister Arun Jaitley said the central bank had "looked the other way" when banks were lending "indiscriminately" between 2008 and 2014.
"It is hard to believe that the RBI governor will resign because it is unprecedented and would look quite irresponsible and (an) immature step", said a senior trader at a foreign bank. When asked, economic affairs Subhash Chandra Garg said that a high-level committee would decide whether they would go that route to provide relief to stressed power projects. Meanwhile, the government has maintained that RBI has sufficient powers to regulate both private and PSU banks. They all largely came out in support of the central bank.
Experts and observers noted that before Patel, others, including Raghuram Rajan, Arvind Panagaria and Viral Acharya pointed at serious problems with the way this government approached economic policies and implementation. A little before 12 noon on Tuesday, a smiling Patel arrived at the Finance Ministry in North Block along with his four Deputy Governors, acknowledging mediapersons' greetings. "It shows that government is hiding facts about the economy and is desperate".
"The present crisis is the result of government planting of stories in the media against the RBI".
Yields on the benchmark 10-year bond rose as much as 6 basis points to 7.89 percent.
The RBI under Patel has been pushing for more powers to clean up a banking system that's saddled with bad debts.
It is anxious that the central bank's hawkish monetary stance and stringent regulations on lending by state banks could push economic growth below 7 percent in the October-December quarter - the last quarter for which data would be available ahead of the general election.
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