In what is seen as an indirect attack on the government, the RBI Deputy Governor has asserted that governments that do not respect central bank’s independence would sooner or later incur the wrath of financial markets.
The RBI deputy governor’s statement assumes significance as there had been instances in the past when the RBI and the Central governments differed on policy matters.
Acharya warned that undermining a central bank’s independence is akin to committing a “self goal” for any government.
He also added that wiser politicians will give a central bank necessary autonomy so that they reap electoral benefits of stable macroeconomic conditions which such independence will bring.
“What matters is the effective independence with which these powers (vested in the Acts governing the RBI or any central bank) can be exercised in practice, ” Acharya said while delivering the A D Shroff Memorial Lecture in New Delhi.
“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.