 "Jaitley dispels talk of rift between govt and RBI")
“There has always been and will continue to be a regular interaction between the Reserve Bank and the government...We have complete free and frank discussions and, therefore, there is no question of any disconnect. I have repeatedly clarified that,” Jaitley told reporters after a meeting of the Central Board of RBI, here on Sunday.
Jaitley was addressing the RBI board on his proposals in the Budget for 2015-16, which contains a number of announcements aimed at redefining the traditional relationship between the two.
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Jaitley had announced the signing of a monetary policy framework and setting up of a monetary policy committee, with the aim of bringing down retail inflation to below six per cent by January 2016.
The Finance Bill also contains proposed amendments to the RBI Act. On the face of it, these take away regulation of government securities’ (G-secs’) markets and money markets from the central bank.
Government officials have said the proposed amendments, to sections 45U and 45W of the Act, will only take away G-sec depository responsibilities and market regulations from RBI. Decisions on repo rates, reverse repo rates, overnight and interbank lending rates will continue to be under the central bank’s ambit.
“Proposals in the Finance Bill are before Parliament…some we discussed earlier…I don’t wish to comment at this stage,” Jaitley said on Sunday.
As a new agency takes shape for taking over the public debt management role from the central bank, Governor Raghuram Rajan favoured keeping this entity independent of the government as well as the central bank to ensure fiscal discipline.
“Public Debt Management Agency as a professional organisation, independent of the central bank and government... is something that is desirable,” he said.
Rajan said such a structure “puts some discipline on the government debt process and also frees regulation of the need to create some sort of financial impression”.
On the possibility of future interest rate cuts, Rajan told reporters it would depend on the pattern of inflation and they’d watch the impact of unseasonal rain and hail on prices.
“While the external environment is a constraint, a lot of what we need to do has to do with the internal environment,” he said, adding the US Federal Reserve might take a little longer to raise interest rates.
“As far as rains go, there is no direct one-to-one correlation between rains and prices. It depends on what crops are impacted. What it means is that we have to be more careful in food management and the government has repeatedly said it is looking at food prices and is engaged actively in food management. It needs greater vigilance,” he said.
When asked whether banks would be pressurised to pass on rate cuts to consumers, Jaitley said the government doesn’t put pressure but hopes this would happen, in line with RBI policies. Despite RBI cutting short-term lending rates twice, a total of 0.5 per cent, in quick succession, banks have yet to reduce lending rates for borrowers.
Answering questions on the fiscal deficit, Rajan said the government had taken a number of steps and much would depend on the external and internal environment, especially the disinvestment programme which is dependent on the markets.
“It (also) depends on the actions of state governments. So, we have to look at all these to see how much fiscal consolidation is happening over the course of the year, given the intent that has already been expressed,” he said.
Apart from Jaitley and Rajan, the 17-member RBI Board comprises, four deputy governors, the finance secretary and financial services secretary, industry representatives and other experts.