Rupee, bond prices fall as RBI-govt spat seen widening

Rupee, bond prices fall as RBI-govt spat seen widening

Rupee, bond prices fall as RBI-govt spat seen widening

What's interesting is that the following Section of the RBI Act has never been used by any government post the independence of India.

The media reports also said the government had invoked never-before-used powers to issue directions to the central bank governor on matters of public interest. The association said Acharya's comments about government's interventionist role vis-àvis the RBI have created a flutter across the nation.

In its statement issued Wednesday, the finance ministry said, "The autonomy for the Central Bank, within the framework of the RBI Act, is an essential and accepted governance requirement".

"Still it does sound like the finance ministry is trying to dial down the temperature".

Reserve Bank of India Deputy Governor Viral Acharya's speech last week was seen by many as a clear indication of the friction between the government and the central bank, which has now properly spilled over into the public domain.

Indian markets clawed back some early losses after the statement but still appeared tentative.

The 10-year gilt yield stood at 7.8878% against its previous close of 7.831%.

"RBI may also revisit the lending restrictions of PCA banks and consider allowing them lending to NHB which in turn can use it to finance housing projects", said CII in its recommendations.

Government said that it holds "extensive consultations" with the central bank from time to time.

Investors are anxious that a prolonged row between the government and the RBI could impact decision making at a time when India's financial markets have been hit hard by a series of debt defaults by one of the largest infrastructure funding companies.

Public sector banks: Following the Nirav Modi-Punjab National Bank case, the RBI and Centre began pointing fingers at each other.

"If RBI's top brass exits, there is a likelihood of instability that will be perceived, and that can have an impact on the economy and the market at large". Giving control of the Reserve Bank of India to its Board of Directors effectively gives this control to thel government.

The rift between RBI and the Centre came into highlight after RBI published a dissent note on its website, expressing its disagreement with the government in setting up a separate payments regulator.

On Tuesday, finance minister Arun Jaitley criticised the RBI for failing to check indiscriminate lending during 2008 and 2014 that has led to the present bad loan or NPA crisis in the banking industry.

However, there was no sign of resignation by Patel at the meeting, officials said.

Although the government in a bid to bring down the mounting tensions issued a statement saying that government has "nurtured and respected" autonomy of the Central bank and has been holding extensive consultations with it on many issues, the anxiety in the air was palpable. TV channels said Patel has called for a full RBI board meeting on November 19.

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