Raghuram Rajan: RBI is like a seat belt for the government

Raghuram Rajan

Amid mounting tension between the Reserve Bank of India (RBI) and the finance ministry, former RBI Governor Raghuram Rajan on Tuesday said the central bank is like a seat belt in a car, without which accidents can happen. Pitching for respecting the institutional autonomy of the RBI, he said the central bank has the liberty to say no if the government pushes it to be lenient.

Ahead of the November 19 meeting of the RBI Board, he said the objective of the Board is to protect the institution and not serve others' interests. "The RBI is something like a seat belt. As a driver, the driver being the government, it has the possibility of not putting on a seat belt but of course if you do not put on your seat belt you get into an accident and the accident can be quite severe," he told CNBC TV18.

Historically, the relationship between the RBI and the government has been precisely this - the government wants to focus on improving growth and it does all it can within the limits set by the RBI which are based on financial stability.

"So, the government will push, will try and get the RBI to be more lenient," he said, adding the central bank would examine them in close details and in reference to risks to financial stability. "We (RBI) have responsibility for financial stability and therefore we have an authority to say no," he said.

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