Finance minister Arun Jaitley dismissed murmurs about growing differences between the government and the Reserve Bank of India (RBI), even as the central bank governor Raghuram Rajan on Sunday guardedly favoured plans for an independent agency to manage public borrowing.
“There has always been regular interaction between the central bank and the government...all issues, concerning both are regularly discussed... we have complete free and frank discussions and therefore there is no question of any disconnect,” Jaitley told reporters after addressing the RBI board at the customary post-budget meeting on Sunday.
Also, in an oblique nudge to banks to cut interest rates, Jaitley said while the government does not put any pressure on banks to take decisions on the issue, he hoped that they would reduce rates in line with the RBI policies.
Jaitley in his budget speech on February 28 had announced the government’s intent to set up a public debt management agency (PDMA) to serve as the government’s investment banker and manage public borrowing.
Under the current system, the RBI acts as the government’s banker, which sometimes brings it in conflict with its other major task of controlling inflation. As the government’s banker, the RBI has to keep interest rates low. But, it faces a dilemma in times of high inflation when it has to keep lending rates high.
“A public debt management agency as a professional organisation, independent of the (central) bank, independent of the government, is something that is desirable,” Rajan told a joint news conference with Jaitley.
Last month, the government and the RBI agreed to adopt a monetary policy framework, which will make taming inflation the primary priority of the central bank’s policy decisions.
Under the new system, billed as biggest monetary reform measure in a generation, the RBI will set a new retail inflation target of below 6% by January 2016 and 4% by March 2017.
The framework also will empower the RBI governor to decide the most appropriate measures needed to achieve that target.
The agreement was signed on February 20, barely a week before the presentation of the Union Budget on February 28.
Jaitley added that discussions between the government and the RBI are a continuing process. “They (discussions) have been before the budget and have taken place after the budget as well,” he said.