New Delhi, News24 Bureau, Oct 27: RBI Deputy Governor Viral Acharya sounded tough when he blamed the government for the ongoing crisis in the market. The senior RBI official has spoken up for the independence of the Central Bank and was critical about the policies of the Modi government.Government officials have recently called for the RBI to relax its lending restrictions on some banks, and the Centre has also been trying to trim the RBI's regulatory powers by setting up a new regulator for the country's payments system, according to reports.Acharya was pitching for "effective independence", and without mincing words said that the governments which do not respect central bank's independence would sooner or later incur the wrath of financial markets."Governments that do not respect central bank's 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," Acharya said.Amid instances of apparent differences between the government and the RBI, Acharya emphasised that undermining a central bank's independence is akin to committing a "self goal" for any government.Wiser politicians will give a central bank necessary autonomy so that they reap electoral benefits of stable macroeconomic conditions which such independence will bring, Acharya said.Noting that markets have a keen eye on this aspect, he said that if uncertainty grows and confidence in central bank's independence and credibility erodes, "then markets rap bond yields and exchange rate on the knuckles!""Wiser governments which accord the necessary leeway will benefit through lower costs of borrowing, the love of international investors and longer life spans," he said.In recent months, the RBI and the government have been apparently differing on approach to certain issues, such as those pertaining to payment systems regulator and Prompt Corrective Action (PAC) norms for banks.Acharya termed the RBI as a "friend" of the government, which will "tell the government unpleasant but brutally honest truths and correct, to the extent it can, any adverse long-term consequences of government policies".The basic difference between a central bank and a "myopic" government is of the time horizon for which decisions are made, he said, comparing central banks with cricket Test teams and the executive arms of the government as T-20 teams looking for quick results.Acharya also spoke about the scenarios which can compromise the central bank's independence such as appointment of government officials rather than technocrats to key positions such as governor, erosion of its powers through "piece-meal legislative amendments", blocking of rule-based central bank policies and setting up of parallel regulatory agencies."Sweeping bank loan losses under the rug by compromising supervisory and regulatory standards can create a facade of financial stability in the short run, but inevitably cause the fragile deck of cards to fall in a heap at some point in future, likely with a greater taxpayer bill and loss of potential output," he said, pointing to the over Rs 10.50 lakh crore NPAs the banking system is plagued with.
(Pic Source Internet)