It is welcome that the Reserve Bank of India (RBI) has come out with a RBI medium-term strategy framework. The RBI — which is the monetary authority, banking regulator and banker to the government rolled into one — does need forward-looking norms to strengthen citizens’ trust and investors’ confidence. Sensibly, the document identifies RBI’s core purpose as achieving monetary and financial stability, so as to contribute to macroeconomic health and growth. The monetary policy committee’s focus on retail price inflation could occlude considerations of financial stability.
RBI medium-term strategy
The strategy document seeks to raise RBI’s relevance and significance in its national and global roles. Rightly, RBI seeks to cultivate the “highest standards of integrity and independence”, with transparent accountability. The stated objectives surely need to include better inflation forecasting. The central bank’s inflation outlook has been off the mark in recent years, erring on the side of caution time and again, and inducing a policy stance that could well have contributed to suboptimal growth momentum.
The document would appear to have left outside its field of vision growing complexity in two vital areas: regulation and financial technology. Financial regulation in the country is fragmented, leading to turf overlaps as well as unmonitored borders. Regulation of credit default swaps, which, in the US, can be deliberately triggered without breaking the law, calls for new insights and capability. The interface between computing, communications and finance throws up new products and regulatory challenges. Macroprudential concerns in a globalising world call for new kinds of vigilance. All these have to figure on the central bank’s horizon.
It is welcome that RBI recognises the importance of human resources. The strategy paper calls for innovative, dynamic and skilled human resources. What is surely required is a system of lateral entry and exit, so as to have a pool of top-class, enthusiastic and market-savvy talent, without loss of functional integrity.This piece appeared as an editorial opinion in the print edition of The Economic Times.