Govt-RBI rift: Widens after govt invokes a clause for the first time

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The rift between India’s central bank and the government has widened and could lead to the Reserve Bank of India (RBI) governor considering resignation, CNBC TV18 reported on Wednesday, citing sources.

The differences have heightened to such an extent that the Indian government has invoked never-before-used powers under the RBI Act allowing it to issue directions to the central bank governor on matters of public interest, the Economic Times on Wednesday.

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Separate letters have been sent to the Reserve Bank of India (RBI) governor in recent weeks, exercising powers under the section on issues ranging from liquidity for non-banking financial companies, capital requirement for weak banks and lending to small and medium enterprises, the newspaper report said. The law cited by the government is Section 7 (1) of the Reserve Bank of India Act, according to the people.

The law empowers the government to consult and give instructions to the governor to act on certain issues that the state considers to be in public interest. The letters prompted Deputy Governor Viral Acharya’s hard-hitting speech on Friday, in which he warned that toying with the central bank’s independence could lead to dire consequences,

The rift between central bank and the finance ministry spilled into the public domain after Acharya’s October 26 speech on preserving the RBI’s autonomy.

Meanwhile, sources made it clear that both Patel and Acharya will continue to hold their posts, The Hindu BusinessLine reported. Patel was appointed in 2016 for a three-year tenure, which could be extended by two years. Acharya was appointed on January 20, 2017 for three years.

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