The autonomy of the individual or committee deciding monetary policies, including interest rates, is one of the key principles governing money supply in the economy. Asserting that independence in the eternal inflation versus growth debate led to extreme tensions in the past three years in India, featuring two central bank governors of totally different temperaments, who seem bound by the same conservatism in tackling repo rates. There may have been differences within the Monetary Policy Committee itself in the latest round of rate-fixing, but the RBI governor’s views on holding rates prevailed. The RBI is not expected to take orders from the government nor be guided by its tearing hurry to open up the banks’ treasure chest to lend in the hope of capital aiding growth as well as generating jobs.
As with America’s Fed and the Bank of England, India has tasked the RBI to set monetary policy and control money supply. A clash of perceptions led to such bad blood between Raghuram Rajan and the Centre that he walked to academia with head held high as his term ended. Incumbent governor Urjit Patel appeared pliant during the demonetisation exercise, but it seems he is now asserting himself. If crude oil prices remain low and GST proves to be not inflationary, the time may soon come when the MPC decides in favour of a reduction in rates. What his committee did, rejecting a meeting with the government prior to its policy meeting, was clearly justified. It’s best that decision-making on these matters is left to the RBI governor and the MPC that he heads.