OPINION
Don’t tinker with RBI – Moody’s
New Delhi : American research firm Moody’s Analytics, in a report, warned against the NDA government’s moves to tamper with the autonomy of the Reserve Bank of India in deciding on interest rates, as being potentially damaging for the economy. “Moving to the new model would severely dent the RBI’s competency: Credibility would be lower, politics would drive decisions, and transparency would be reduced,” the economic research conmpany said.
The government last week released the draft Indian Financial Code, which proposes to remove the RBI governor’s veto right in the monetary policy committee.Besides taking away the RBI governor’s authority to veto interest rate decisions, the draft also proposed that the monetary policy committee would have four representatives of the government and only three from the central bank, including the RBI “chairperson”.
“Overall, we believe that tampering with the central bank’s independence would make it difficult to anchor inflation expectations.
This would weigh on India’s economic prospects, particularly financial market stability,” said the Moody’s report. “But given the criticism of the draft bill, it is unlikely to pass parliament,” it added.
New Delhi : American research firm Moody’s Analytics, in a report, warned against the NDA government’s moves to tamper with the autonomy of the Reserve Bank of India in deciding on interest rates, as being potentially damaging for the economy. “Moving to the new model would severely dent the RBI’s competency: Credibility would be lower, politics would drive decisions, and transparency would be reduced,” the economic research conmpany said.
The government last week released the draft Indian Financial Code, which proposes to remove the RBI governor’s veto right in the monetary policy committee.Besides taking away the RBI governor’s authority to veto interest rate decisions, the draft also proposed that the monetary policy committee would have four representatives of the government and only three from the central bank, including the RBI “chairperson”.
“Overall, we believe that tampering with the central bank’s independence would make it difficult to anchor inflation expectations.
This would weigh on India’s economic prospects, particularly financial market stability,” said the Moody’s report. “But given the criticism of the draft bill, it is unlikely to pass parliament,” it added.
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