Indian Govt to strip RBI of power |
India plans to strip its Reserve Bank of India (RBI), the central bank, of authority to regulate government bonds but leave it in charge of other money market instruments. This could possibly lead to a confrontation with Reserve Bank of India Governor Raghuram Rajan. The move by Finance Ministry is part of an overhaul intended to expand bond markets by attracting retail investors and improve the transmission of monetary policy. What would be the biggest regulatory shakeup in a generation is expected to overshadow policy meetings on March 22 in New Delhi, which will be attended by Finance Minister Arun Jaitley, Rajan and India`s stock market regulator SEBI whose powers stand to be enhanced. The objective is reported to push financial-sector reforms. A bond market that is well functioning is one where retail and corporate investors can participate. Changes proposed by Jaitley in his February 28 budget triggered speculation that he was also looking to transfer money market regulation from the RBI. Together with a monetary policy pact announced after the budget, India would move towards leaving the RBI with a formal mandate to control inflation and oversee banks but without much of its market oversight. The RBI has reportedly expressed concern over the shakeup. Rajan went on the record last year as saying the creation of a markets super-regulator would be `somewhat schizophrenic`. The RBI deputy governor Urjit Patel has voiced objections to the latest move on March 18 while meeting Finance Secretary Rajiv Mehrishi.
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