RBI executive director moots inflation-centric monetary policy

RBI executive director moots inflation-centric monetary policy

Mangalore Today News Network

Manipal, Aug 26, 2015:  Delivering the 19th T A Pai Management Institute (TAPMI) leadership lecture on ’Financial Stability and Monetary Policy’ in the city,   The Reserve Bank of India (RBI) Executive Director Deepak Mohanty said that RBI was moving towards inflation-targeting approach as against the global banking sectors on the way to multiple indication approach.   Mohanty said that India was instrumental in introducing macro prudential policy in the world.  

Stressing on the need to revisit into the micro financial policy, the banker said a lot of research was needed in the area. He added that monetary policy should be inflation centric. 

Mohanty said that central banking was a dull subject, where independence and accountability should be guaranteed. They are technical institutions.

Lamenting over the political interference, he added that the central banking didn’t have exclusive role, but plays a lead role because of the existence of gamut of financial institutions. He said that the central banking ensured unlimited liquidity in the system. He said the 80 odd years old RBI was a full service bank.

Stating that confusion over the monetary policy and the macro prudential policy is an issue, the expert said financial stability comes with shared responsibility. He added after the financial crisis, the RBI had introduced financial stability and development council which is headed by Finance minister.

Mohanty added that the committee would provide report on the financial stability. He added that restructuring of the system has taken place and a lot of work was done in the institutional design for coordination. Although Indian rupee is stable, it is depreciating. The stability is owing to the improvement of the micro fundamentals. The depreciating rupee value is due to the non performance loan from banking sector which has gone as high as 4.5 percent of their aggregate credit. He added that restructure advances is 10 percent of the aggregate loan book of the bank sector. The heavy infrastructure lent is also a matter to concern, he added.

Asserting that recapitalisation of the public sector bank should be there, the banker said the government had come forward to offer Rs 70,000 crore. The RBI estimates that Rs1,80,000 crore is required as banking stability indicator. However, significant changes in the monetary policy has take place which at present is driven by financial market like monetary transmission and openness of economy. He said the financial linkage in India is larger with much more linkages with global economy.

The internal and external changes do have implications over the monetary policies that are moulded. He said little inflation is better. He added that there is nexus between financial stability and monetary policy and risk taking challenge affects the system, he reiterated.