RBI-govt spat: International Monetary Fund against interference that compromises central bank's independence

Washington: The International Monetary Fund has said it was monitoring the development in India with regard to the reported rift between the Reserve Bank of India and the Centre. It expressed its opposition to any move that compromises with the independence of central banks anywhere in the world. “We’re monitoring the development on that issue and will continue to do so,” IMF Director of Communications Gerry Rice told reporters on Thursday when asked about the row.

“Just stepping back, as a general principal, and we’ve said this before. I’ve said this before standing here that we support clear lines of responsibility and accountability… And, international best practice is that there should be no government or industry interference that compromises the independence of the central bank and financial supervisor,” Rice said.

This is true across the range of countries that the independence of the central bank and the financial supervisor is of utmost importance, he asserted. “We regard it as such and we have to make that statement in the context of a number of countries. So, I think that’s probably the best response I can give you,” Rice said, responding to a question on the increasing efforts globally to criticise central banks, including the one by the US President Donald Trump in recent weeks. [caption id=“attachment_4133561” align=“alignleft” width=“380”]  Representational image. AFP[/caption] The row was sparked off last Friday when RBI Deputy Governor Viral Acharya in a hard-hitting speech warned that undermining central bank’s independence could be “potentially catastrophic”, possible indication of the RBI being pushed to relax its policies ahead of general elections next year. Sources privy to the development said the government had sent at least three letters on different issues under Section 7 of the RBI Act that gives it powers to issue any direction to the central bank governor on matters of public interest. The standoff was in relation to RBI’s handling of weak public sector banks, tight liquidity in the market and ways of resolving bad loans in the power sector. Unconfirmed reports claimed Governor Urjit Patel was considering stepping down if the government were to issue an unprecedented direction. Without acknowledging that the notices have been sent to the RBI, the Finance Ministry in a statement said that the “autonomy for the central bank, within the framework of the RBI Act, is an essential and accepted governance requirement. Governments in India have nurtured and respected this”.