Really?
The state bank had a happy Independence Day. It’s not every day, after all, that a government passes legislation that empowers the central bank to take crucial monetary policy decisions independently. But isn’t the Bank already independent? And hasn’t it, quite publically, defended this autonomy, especially when the press found certain interest rate decisions remote controlled; and once when the finance minister announced a change one night before? Besides, if the government is pushing for central bank autonomy, just what sort of interference is it implying if not from itself? That there was practically no debate on the matter – since opposition members had walked out, again – and required number of lawmakers were not present, just about sums it up.
But now that an initiative has been taken, certain pointers will be important. How much influence the finance ministry can exercise over the interest rate is not always apparent from the monetary policy report. However, the Bank is now in a position to put its foot down on the matter of banks advancing loans to the government. For far too long now the government has relied on borrowing to finance even its day-to-day running. Surely, no responsible and truly independent central bank would allow this.
It is heartening, though, that someone has finally settled the ‘lender of last resort matter’. The recent great recession should have proved to everybody the importance of ensuring solvent credit markets. With the expansive fiscal outlook especially – with large construction projects coming online – this solvency will be crucial. Also, the central bank is in a more assertive position to enforce regulations, etc, when it is also the ultimate saviour. Hopefully this is the shot in the arm that will make the Bank finally toggle the instruments at its disposal without any undue interference. At best, it could spur investment. At worst, things will remain the way they are.