Central Bankers and Ornithology: Hawks, doves, owls and lame ducks…

Rajeev Malik in this Mint piece:

Das should also take note of the following: First, differences in opinion will often exist. However, domain specialization doesn’t mean a licence to be selectively accountable, or to switch off the common sense approach to communication and consultation. Equally, governments cannot continue treating the RBI like a vacuum cleaner, to sort out the mess caused by, say, their delayed actions, policy mishaps, or unexpected outcomes of their shoddy implementation.

Second, central banking isn’t a popularity contest. Given the sweeping powers the current RBI Act gives to the government, it is only the strength of the spine of the RBI governor that prevents a government from bulldozing its way through with politically self-serving and reckless initiatives that could compromise long-term economic stability. The legality of an initiative isn’t the final word on deciding if it is responsible and in our long-term interest.

Third, central banks are prone to forecasting errors. This isn’t appreciated by those who don’t have to be accountable for forecasts, or by those blessed with selective amnesia about their own forecasts. Recall that the majority was singing the same worry in October when Brent oil prices were threatening to march towards $90-100 per barrel.

Separately, the RBI should review its forecasting track record and explain the misses to enhance its transparency and credibility. Also, liquidity management is one of the most basic jobs of a central bank. It is worth exploring why the RBI has often struggled with it and done a dissatisfying job of answering the concerns.

Finally, there has to be a greater focus on ensuring sustained macro stability, not just enjoy it as a lucky outcome. India’s growth is frequently interrupted by concerns about macro stability because policymakers rely heavily on optimistic assumptions and insufficient policy buffers. People in government pump up how big the Indian economy will be in 10-20 years, but there is no thoughtful assessment of how to get there.

RBI governors are kept on a tight leash by New Delhi via the typical initial appointment for a mere three years. It is up to Das to become a dove, a hawk, an owl or any other monetary bird, but hopefully not a lame duck.

Lame duck looks like a new addition to the ever growing list of tagging central bank governors as some bird type…

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.


%d bloggers like this: