This refers to the report “Subbarao says there is need to cap public debt” (February 2). Reserve Bank of India (RBI) governor has acknowledged the undesirability of the central bank buying back old government securities to keep down yields for new bonds. The main objective of a separate public debt office being set up is to resolve the conflict of interest in the central bank functioning as a monetary authority and also as a banker to the government. In a recent interview to the press, a deputy governor of the central bank indicated that it would continue to engage in buyback operations even after it was relieved of the function of public debt management. He made the point that only the portfolio management (yield and so on) will be taken away, while the financing part will be retained. Is this how it works in western central banks? The continuance of buybacks will defeat the purpose of a stand-alone debt office. Would it not be better to go back to the old transparent arrangement under which RBI took the securities on its books in the first instance and unloaded them on the market later at favourable times?
A Seshan Mumbai
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