The Reserve Bank of India (RBI) deputy governor Viral Acharya on Friday raised his voice for more independence for the central bank. The RBI number 2 officer said that the governments who don’t respect central bank’s independence have to face the wrath of financial markets sooner or later. Talking to the media in Mumbai, Acharya said, “Undermining a central bank’s freedom could be potentially catastrophic.”
RBI officer’s hard-hitting statement came in light to instances of apparent differences between the RBI administration and the Central 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,” PTI quoted Acharya as saying. Acharya further said that what matters is the effective independence with which these powers (vested in the Acts governing the RBI or any central bank) can be exercised.
“Governments that do not respect central bank’s independence will sooner or later incur the wrath of financial markets, ignite the economic fire and come to rue the day they undermined an important regulatory institution,” said Viral Acharya.
“If uncertainty grows and confidence in central bank’s independence and credibility erodes, then markets rap bond yields and exchange rate on the knuckles,” said RBI officer. He added that the RBI is a friend of the Centre, which helps to tell the government unpleasant but brutally honest market truths and correct the adverse long-term consequences of government policies.