Modi Government to Keep Up the Pressure on RBI Governor

RBI is Like Seat-Belt, Will Prevent Accident: Raghuram Rajan

RBI is Like Seat-Belt, Will Prevent Accident: Raghuram Rajan

"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", Acharya had said. And so the RBI has not accepted the proposed changes, sources added.

Recently, the government cited never-used before provisions of law that gives it powers to issue directions to the RBI on mattes of public interest to resolve certain issues. The RBI did not respond to an email seeking comment. The government had then appointed Urjit Patel as his successor.

While Mr Gandhi has accused the government of "destroying" institutions with its alleged strong arm tactics, differences between the government and RBI came out in public domain after a deputy governor raised concerns about the central bank's autonomy.

The RBI has consistently pushed back against calls from the government to hand over more money from its reserves to help fund the fiscal deficit. The aim is to help offset economic headwinds from low farm prices and high fuel prices ahead of a general election due by next May and key state elections in a few weeks. He had also said how a transfer of excess reserves from a central bank to the government can be "catastrophic" and may ignite "economic fire".

"The role of the board has typically been to supervise the workings of the RBI, like internal audit and recruitment".

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Sources had said that the RBI's board meeting on November 19 was pre-scheduled and routine.

He also noted in his address to top industrialists that the Argentine government's meddling in its central bank's affairs in 2010 led to a market revolt and a surge in bond yields. "Patel and his team must recognise the period of an invisible RBI board is over", one of the New Delhi-based sources said, noting that the RBI will sooner or later have to fall in line.

"I think certainly it would be best if both sides respected each other's motivation and thoughts. the RBI after listening to the government has provided the best professional answer. and historically it has done that", he said.

Earlier, Moneylife had reported that as the government and central bank are engaged in a power tussle, there is a chance that Patel could step down.

"The RBI is something like a seat belt, the driver being the government. there could be a possibility of not putting on a seat belt".

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