AUTONOMY OF RBI PREPARED BY NASIYA V K
AUTONOMY OF RBI PREPARED BY NASIYA V K
How is rbi autonomous • RBI is currently a self governing institute which fixes it's targets and works under its rules. • It is free from external control of government. So far, Central Government can only suggest RBI but RBI has the freedom to implement their suggestions.
THREE MAIN ROLES OF RBI 1. Ensuring low and stable inflation • Ensure low and stable inflation via the autonomous conduct of monetary policy. • Once the target is laid down by the central government, the central bank must ensure that it meets those targets with complete operational autonomy.
2. Debt management • The RBI is the government’s debt manager • This function has been proposed to be hived out to an independent debt management agency but resisted by the central bank.
3. Regulation of the banking system • Government plays a separate role in the banking sector as the owner of public sector banks which control nearly 70 per cent of all lending.
Autonomy -Independence • Central bank independence. Goal Low and stable inflation Efficient monetary policy
Two main independence related to the goal Political independence Economic independence • To pursue the goal of price stability without the instructions from ruling government. • The central bank has unlimited freedom to determine all monetary policy transactions that lead to changes in its operating targets
Three types of independence GOAL INDEPENDENCE INSTRUMENT INDEPENDENCE PERSONAL INDEPENDENCE
GOAL INDEPENDENCE • Government has no direct influence on the goals of monetary policy.
INSTRUMENTAL INDEPENDENCE • It implies that a central bank is able to set its operating targets without any interference from the government.
Three Elements • Control of the short term interest rate. • Control of the exchange rate. • Restrictions on central bank credits to the government.
PERSONAL INDEPENDENCE • Governor He is the only one person is in charge of monetary policy decisions.
CONCLUSION • In a democracy, the final responsibility of all policy decisions must lie with Government • Therefore there should be mutual cooperation and coordination between RBI and Government in large at public interest for an efficient and sustainable economy.
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