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'Wrath of the Markets?': Economic Affairs Secy Takes a Dig at RBI Deputy Governor Viral Acharya

Acharya, in his much-talked about speech last week, had raised the issue of autonomy of central bank and undermining the central bank's independence could be 'potentially catastrophic'.

PTI

Updated:November 2, 2018, 6:25 PM IST
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'Wrath of the Markets?': Economic Affairs Secy Takes a Dig at RBI Deputy Governor Viral Acharya
Economic Affairs Secretary Subhash Chandra Garg. (Twitter)
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New Delhi: In an apparent dig at RBI Deputy Governor Viral Acharya's ‘wrath of financial markets’ comment, Economic Affairs Secretary Subhash Chandra Garg on Friday said vital economic indicators are showing improvement, including rupee trading below 73 to a dollar.

Acharya, in his much-talked about speech last week, had raised the issue of autonomy of central bank and undermining the central bank's independence could be "potentially catastrophic".

"Governments that do not respect central bank 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; their wiser counterparts who invest in central bank independence will enjoy lower costs of borrowing, the love of international investors, and longer life spans," Acharya had said.

The Deputy Governor's comment had generated controversy, hinting at the growing rift between the government and the central bank.

Taking to twitter on Friday, Garg took a jibe at Acharya's comment, wondering whether improvements in macro economic parameters can be termed as 'wrath of markets'.

"Rupee trading at less than 73 to a dollar, Brent crude below $73 a barrel, markets up by over 4% during the week and bond yields below 7.8%. Wrath of the markets?" Garg tweeted.

At the Interbank Foreign Exchange (Forex) market, rupee was trading at 72.50 per US dollar at 4pm.

Earlier this week, Finance Ministry had issued a statement saying that the autonomy for the central bank, within the framework of the RBI Act, is an "essential and accepted governance requirement".

However, it added that "both the government and the central bank, in their functioning, have to be guided by public interest and the requirements of the Indian economy".

The government, according to sources, has sent at least three letters to the central bank on different issues under Section 7 of the RBI Act that gives it powers to issue any direction to the apex bank governor on matters of public interest. The government had never used Section 7 in the 83-year old history of the Reserve Bank.

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.

Sources said these letters had prompted Acharya to raise the issue of autonomy of central bank, stressing it was needed to secure greater financial and macroeconomic stability.
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