RBI Must Reorient Its Goals And Communication (towards financial stability)

My new piece in moneycontrol. I start the piece with this observation in the recent monetary policy:

The Reserve Bank’s October 2019 policy review saw a senior journalist questioning to the Governor on the ongoing crisis in the NBFC sector and the recent failure of Punjab and Maharashtra Cooperative Bank (PMC).

To this, the Governor said, “The points which you mentioned about the banking sector or cooperative banks or NBFCs, this is not within the purview of the MPC (Monetary Policy Committee). So, the MPC does not discuss these issues.” 

The RBI chief then went on to assure the house that the banking regulator has acted swiftly to resolve the ongoing troubles and one should not pay attention to rumours.

One was startled to note that the MPC did not discuss the most troublesome issues facing Indian economy. Even the minutes of the policy review meeting showed that there was no discussion on the failure of PMC Bank.

I am sure there was discussion, but it was off the record, given that the meeting was about the monetary policy. It is also amazing how far the RBI has come when it comes to monetary policy decisions and discussions — both within and with the media.

The piece goes onto argue the need for RBI to reorganise and make financial stability an explicit goal. It needs to fix accountability of financial stability to a DG and then communicate with markets…

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