Former governor of Reserve Bank of India Raghuram Rajan. Photo: AFP
Raghuram Rajan, the former governor of the Reserve Bank of India. Photo: AFP

With the Indian government and the central bank on a collision course, former Reserve Bank of India governor Raghuram Ranjan has stressed the need to protect the central bank’s autonomy.

He compared the RBI to a “seatbelt,” remarking that accidents can happen without them. He also felt that unhealthy disagreements between the government and the RBI should not escalate any further, and that the ongoing rift can be resolved if each side respects the other’s intent, CNBC-TV 18 reports.

He commended RBI deputy governor Viral Acharya for speaking out in support of the central bank’s autonomy and said that he felt the RBI had the liberty to say no if the government pushed it to be lenient.

As for non-banking finance companies, Rajan said the central bank should examine its liquidity problem and solve the issue by increasing market liquidity.

Rajan felt India was in a much better situation in terms of inflation and said that, in his view, both the government and the RBI should be duly credited for keeping it low. However, he expressed concern about the rising current-account deficit.

The RBI is scheduled to meet on November 19 and the RBI board, which includes government nominees, may press for accepting suggestions made earlier by the Finance Ministry to RBI governor Urjit Patel.

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