The RBI should look beyond short term | Business Line

The RBI should look beyond short term | Business Line

 My response recorded on March 21, 2014:

Acknowledging the possible disproportionate burden on the monetary policy the ‘election season’ may cast, the author has tried to lighten the task of Dr Raghuram Rajan in putting together his thoughts on the Monetary Policy statement the RBI governor is expected to announce on April 1, 2014. Based on the rich experience of RBI during the past 50 years, Tarapore’s advice to RBI is to conduct its monetary policy unfettered by any thought about the polls.
The need for policy continuity is emphasised by endorsing the stress on CPI(and not WPI), suggesting maintenance of nominal dollar-rupee exchange rate at $1=Rs61-63 by appropriate measures, calling for caution on tinkering with policy rates in the context of recent positive signals and a strong warning against RBI being party, directly or indirectly to window dressing of banks’ balance sheets. Drawing attention to Dr Rajan’s own observation about the need to develop a consensus between GOI and the RBI on the new policy framework, the article suggests an approach to achieve this. And that approach is, use the April 1 policy statement to bring clarity in the public mind about the central bank’s expectations from GOI by way of fiscal policy support. RBI has already been giving signals to finance ministry that it is not in public interest to interfere beyond tolerance limits in the institutional autonomy within mandated contours.

M G Warrier, Thiruvananthapuram


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