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Sat, Feb 16, 2019 | Last Updated 12:33 am IST

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What happens when there is increased friction between government and RBI?

What happens when there is increased friction between government and RBI?
What happens when there is increased friction between government and RBI?
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As per report the government is asking the RBI to review its policies in several areas where the central bank should be allowed to operate without interference as this is not an entirely new fight. Meanwhile the successive RBI governors after Bimal Jalan have had to fight for operational independence with the finance ministry, but the current set of disagreements comes at a bad time.



Furthermore emerging markets in general are under pressure. Accordingly India is still some time away from achieving financial stability by solving the twin balance sheet problem bad assets at banks and corporate hamstrung from raising credit. Further riding roughshod over the central bank could easily lead to heavy capital outflows and delay the rehabilitation of the banking system.

What happens when there is increased friction between government and RBI?

Moreover if the government amends the RBI Act to force the central bank to cough up more dividend, it will set a dangerous precedent and hence this is not to say that there is no need for debate about the effectiveness of RBI’s regulation over the banking system. RBI should be set to high standards and taken to task if it fails. As per report the correct way to change policy would be set clear goals and objectives the flexible inflation targeting framework is a great example and allow RBI the operational room to do its job

What happens when there is increased friction between government and RBI?

What happens when there is increased friction between government and RBI?
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