Govt not to restrict RBI’s powers

Rate panel twist

Fin Secy says govt has not made up its mind on draft IFC

This is still to be considered by the government as a discussion paper. So from that, to jump to a conclusion that some curtailment of the power of the RBI has been made or the government has decided to do so would be incorrect

New Delhi: Going on the backfoot over a draft Bill proposing curtailing powers of RBI Governor on interest rate, the government on Monday said it is not right to conclude that it wants to curtail the central bank's powers.

At a hurriedly called press briefing, Finance Secretary Rajiv Mehrishi was at pains to explain whose draft proposal was it to withdraw RBI Governor's veto in the proposed monetary policy committee as he contradicted Chief Economic Advisor (CEA) to say it was not a proposal of FSLRC but went on to add that it was not even a government move.

"People of India own this draft report," he said, while seeking to put at rest the controversy generated by revised draft of the Indian Financial Code (IFC) that proposes to take away the veto power of RBI Governor in deciding the benchmark interest rate.

Observing that the government has not made up its mind on draft IFC, he said the government is seeking comments on it which indicates that it is still under discussion. "This is still to be considered by the government as a discussion paper.

So from that, to jump to a conclusion that some curtailment of the power of the RBI has been made or the government has decided to do so would be incorrect," he added. Mehrishi further said that the government's views on the IFC will be revealed when the draft bill is brought before Parliament for consideration and approval.

Chief Economic Advisor Arvind Subramanian had earlier said that the revised IFC draft was based on FSLRC report, a position which was contradicted by FSLRC member M Govinda Rao.

Inflation should not prevent RBI from cutting interest rate Hours before RBI Governor Raghuram Rajan announces third bi-monthly monetary policy of the fiscal, a top Finance Ministry official has said the central bank should not hesitate in cutting interest rate just on inflationary concerns.

The government, he said, was keen on bringing down cost of borrowing and RBI cutting its key policy rate will be a trigger for such a move that will boost investment and growth.

The official said wholesale inflation (WPI) is in negative territory since November and international oil prices, the biggest dampener on domestic commodity prices, are multi-year lows, giving comfort to developing economies like India.

Though bankers feel RBI will be conservative in reducing rates further as retail inflation continues to rule at eight-month high of 5.4 per cent in June. "Inflation cannot be a primary consideration for RBI not to cut rate," the official said, making a strong case for interest rate cut by the RBI.

International crude oil prices have halved to $51-52 per barrel over the past one year, leading to several rounds of cut in retail prices of petrol and diesel, a key input to inflation.