New Delhi: The Government is upset with the Reserve Bank of India (RBI) for publicly talking about a rift, said reports on Tuesday. Officials said RBI deputy Governor Viral Acharya’s speech last weekend could tarnish the country’s image among investors, according to a report on Zee News. (Also read: Undermining Central Bank a Recipe of Disaster Which Govt Must Desist: RBI Staff Backs Viral Acharya)
On Friday night, Acharya had warned that undermining a Central bank’s independence could be “potentially catastrophic”. In a speech to top industrialists, Acharya cited the Argentine government’s meddling in its Central bank’s affairs in 2010 as an example of what could go wrong. “Governments that do not respect central bank 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,” Acharya said.
A government official was quoted as saying that it was vital that what transpired between the Government in New Delhi and the RBI in Mumbai was kept confidential. “The Government respects the autonomy and independence of the RBI but they must understand their responsibility,” the official said.
A PMO official said it was “very unfortunate” that the RBI took the matters public. “The Government is very upset. It was not expected from the RBI,” the official added.
Government officials recently called for the RBI to relax its lending restrictions on some banks. While the Centre has been trying to trim RBI’s regulatory powers by setting up a new regulator for the payments system, it has also been pushing the bank for funds out of its 3.6 trillion rupees ($49 billion) surplus.
Officials are particularly upset with the timing of Acharya’s speech; the attack came when Prime Minister Narendra Modi was headed for Japan for talks with Prime Minister Shinzo Abe. The official said the Finance ministry officials remained silent in response to the speech at the weekend as they didn’t want to aggravate the issue while PM Modi was away.
Government officials believe that even RBI Governor Urjit Patel has some responsibility for the controversy. More so, because Acharya had three of his fellow deputy governors in the audience and he thanked Patel for his “suggestion to explore this theme for a speech”.
“When we are facing problems on the external front like high crude oil prices, trade tensions putting pressure on our current account balance, can we afford another domestic crisis?” a government source was quoted as saying.