Skip to main content

Dont Hijack RBIs Monetary Policy Role

By
Hold the RBI to account, do not undermine it
It is welcome that the government has clarified that the draft code put out by the Financial Sector Legislative Reforms Commission is just that: a draft, and not necessarily a reflection of the government's thinking. If the draft were to become the law, the RBI will become a toothless body while core monetary policy will shift to the government. If the Urjit Patel committee's recommendation to vest policy-setting powers in all-RBI committee was a piece of central banking power grab, the present recommendation is an attempt to divest the RBI of any rate-setting power, even as it remains tasked with containing inflation. The government should rethink the code.
One lesson from the 2008 financial crisis is that monetary policy in a globalising world has to shed its obsession with inflation and target multiple goals -financial stability , growth and stable prices -with multiple instruments: variable margins, quantitative limits, interest rates. Policy-making has to be context-sensitive and cons ultative, not rule-bound or left to a group of professionals whose expertise is deemed error-proof. Unless fiscal policy is harmonised with monetary policy,macroeconomic stability cannot be achieved. Consultation must mean a genuine exchange of views so as to inform each party's conduct with the concerns of the other. Packing a monetary policy committee (MPC) with a majority of government nominees genetically programmed to crawl when asked to bend and stripping the RBI governor of veto power together spell diktat, not consultation.
An MPC with non-RBI members to discuss policy rates is eminently desirable, to break RBI groupthink. But the responsibility for deciding monetary policy must stay with the RBI. Give the RBI governor a veto power. That will also make him accountable. And he must be held to account every quarter by a multiparty committee of Parliament, to which he must convincingly explain the rationale for RBI policy. And that explanation must be made available in the public domain, to be digested and debated by an informed public discourse.
The Economic Times, New Delhi, 27th July 2015

Comments

Post a Comment

Popular posts from this blog

Data storage norm splits digital payments industry

By
Data storage norm splits digital payments industry  India’s nascent digital payment industry could be thrown into disarray due to the demand by the Reserve Bank of India (RBI) that all user data be stored within the country, fears an industry grouping, which has termed the decision as “heavy-handed”, even as others, including the country’s largest digital payment provider Paytm, have hailed the move.  In a bid to narrow the growing schism, the industry is planning to send a formal representation to the regulator highlighting its concerns, a top official told ET.  “We are trying to build a consensus on the issue," said the person adding that the representation to the central bank will be ready this week.  RBI on April 6, mandated all payment companies—global and local—to set up data storage facilities within India by October. The stringent six-month deadline has attracted the ire of several sections of the industry that fear it will lead to a disruption of wel...
18 comments
Read more

Offer’s for all of you

By
Great Bumper Dhamaka Offer’s for all of you... It's Time to see your Business Online, WebeCreator Offer Website Designing with domain & Email @ nominal charges. For a year For More information visit us http://goo.gl/KlpppF call on 9890151261/9773197533  drop a mail to sales@webecreator.com
Post a Comment
Read more

Sebi to finalise options in commodities today

By
The Commodity Derivatives Advisory Committee of the Securities and Exchange Board of India ( Sebi) will meet on Friday with senior officials of the latter, to give a final shape to the rules on options trading in commodity futures, beside revising the warehousing norms to ensure good delivery on settlement. The decision taken, after discussing with the advisory committee, will be placed before the regulator’s board, to finalise the regulations. According to knowledgeable sources, three commodities in each segment, agricultural and non- agricultural, have been proposed for introducing options. It appears commodities from the soya and guar segments are preferred in the former. From the non- agri segment, it is likely that gold, silver and crude oil will be finalised. All these These have better liquidity and both the National Commodity and Derivatives Exchange and the Multi Commodity Exchange, respectively, will be able to introduce the options. In the equity segments, options ar...
17 comments
Read more