‘Price Stability and Growth are Key RBI Concerns’  

Express News Service

As an RBI insider for so long, do you think that the bank’s conduct of monetary policy with respect to its ability to manage economic cycles, since 1991, has been in sync with the fiscal policies?
Post 1991, we had put an end to automatic monetisation of fiscal deficit, followed by the Fiscal Responsibility and Budget Management Act, which set a limit on fiscal deficit.

More recently, we have inflation-targeting framework, which works out a compromise between price stability and growth. These reform measures do not automatically result in a synchronous approach. Coordination without sacrificing the specific responsibilities of each institution is what policymakers should work towards.

What steps should the bank take to widen its knowledge base to create policies that would look beyond inflation targeting and obsession with growth figures?
RBI has multiple concerns. Among them, price stability and growth are the key ones. But from time to time, there can be occasions when other objectives such as exchange rate stability or financial stability can demand attention. Problems arise only when there are conflicts among objectives. The bank must decide which objective takes priority.

How far would RBI be able to nudge banks and financial institutions to help mitigate climate-
crisis risk?
Climate change is an issue that needs coordinated action by several bodies. The primary responsibility, however, rests with the government which, through its fiscal policy, can curb or promote certain activities. International coordination is also critical. The role of banks and financial institutions is important 
in credit allocation.

Keeping RBI’s hawk eye on the health of the banking system during Covid-19 in hindsight, do you suggest any further reforms in the central bank to cope with such a crisis in the future?
Dealing with a pandemic arises once in a century. The most recent one has lessons for everyone––
governments, scientists, healthcare systems and financial institutions. 

In mitigating the economic suffering, the banking system can play a role through the provision of credit. Central banks have, world over, learnt a lesson. They had to support the big fiscal deficit that 
was caused by the expansion of expenditures by the governments. 

It is this expansion in liquidity which resulted in a sharp rise in inflation. How to be supportive and at the same time avoid inflation is the big question.
 

<br /> As an RBI insider for so long, do you think that the bank’s conduct of monetary policy with respect to its ability to manage economic cycles, since 1991, has been in sync with the fiscal policies?<br /> Post 1991, we had put an end to automatic monetisation of fiscal deficit, followed by the Fiscal Responsibility and Budget Management Act, which set a limit on fiscal deficit.</p> <p>More recently, we have inflation-targeting framework, which works out a compromise between price stability and growth. These reform measures do not automatically result in a synchronous approach. Coordination without sacrificing the specific responsibilities of each institution is what policymakers should work towards.</p> <p>What steps should the bank take to widen its knowledge base to create policies that would look beyond inflation targeting and obsession with growth figures?<br /> RBI has multiple concerns. Among them, price stability and growth are the key ones. But from time to time, there can be occasions when other objectives such as exchange rate stability or financial stability can demand attention. Problems arise only when there are conflicts among objectives. The bank must decide which objective takes priority.googletag.cmd.push(function() {googletag.display(‘div-gpt-ad-8052921-2’); });</p> <p>How far would RBI be able to nudge banks and financial institutions to help mitigate climate-<br /> crisis risk?<br /> Climate change is an issue that needs coordinated action by several bodies. The primary responsibility, however, rests with the government which, through its fiscal policy, can curb or promote certain activities. International coordination is also critical. The role of banks and financial institutions is important <br /> in credit allocation.</p> <p>Keeping RBI’s hawk eye on the health of the banking system during Covid-19 in hindsight, do you suggest any further reforms in the central bank to cope with such a crisis in the future?<br /> Dealing with a pandemic arises once in a century. The most recent one has lessons for everyone––<br /> governments, scientists, healthcare systems and financial institutions. </p> <p>In mitigating the economic suffering, the banking system can play a role through the provision of credit. Central banks have, world over, learnt a lesson. They had to support the big fiscal deficit that <br /> was caused by the expansion of expenditures by the governments. </p> <p>It is this expansion in liquidity which resulted in a sharp rise in inflation. How to be supportive and at the same time avoid inflation is the big question.<br />  <br />