NEW DELHI: Two days after apparently calling a truce with the RBI, the Ministry of Finance has come back for another bite.
On Friday, Economic Affairs Secretary Subhash Chandra Garg took to Twitter with his no signs of the “Wrath of the markets” jibe.
“Rupee trading at less than 73 to a dollar, Brent crude below $73 a barrel, markets up by over 4 per cent during the week and bond yields below 7.8 per cent. Wrath of the markets?” Garg tweeted.
The remarks are an apparent reference to RBI Deputy Governor Viral Acharya’s speech asserting that “governments that do not respect central bank independence will sooner or later incur the wrath of the financial markets...”A war of words followed, with Finance Minister Arun Jaitley pontificating that RBI failed to check indiscriminate lending during 2008-2014, which caused the prevailing NPA crisis.
Meanwhile, extending its support, the International Monetary Fund (IMF) said it was monitoring the ongoing rift and underscored the independence of central banks. “Just stepping back, as a general principle, and we’ve said this before. I’ve said this before standing here that we support clear lines of responsibility and accountability...And, international best practice is that there should be no government or industry interference that compromises the independence of the central bank and financial supervisor,” said Gerry Rice, Director of Communications, IMF.
This is true across the range of countries that the independence of the central bank and the financial supervisor is of utmost importance, he asserted. As per reports, the government sent at least three letters threatening to invoke Section 7 of the RBI Act that gives it powers to issue any direction to the central bank governor on matters of public interest.
The standoff was in relation to RBI’s handling of weak public sector banks, tight liquidity in the market and on resolving bad loans in the power sector. Following the verbal sparring, it was even speculated that RBI Governor Urjit Patel was considering stepping down if the government were to invoke Section 7.