Govt upset with RBI.
NEW DELHI: Indian government officials are very upset with the Reserve Bank of India (RBI) for publicly talking about a rift with the government.
They feared it could tarnish the country`s image among investors, senior officials said. On Friday night, the RBI Deputy Governor Viral Acharya warned that undermining a central bank`s independence could be "potentially catastrophic", in an indication that it is pushing back hard against government pressure to relax its policies and reduce its powers.
In a speech to top industrialists Acharya cited the Argentine government`s meddling in its central bank`s affairs in 2010 as an example of what can go wrong. That led to a surge in bond yields that badly hurt the South American economy. "Governments that do not respect central bank independence will sooner or later incur the wrath of financial markets, ignite economic fire, and come to rue the day they undermined an important regulatory institution," Acharya said.