Rajan in chains

A FEW years ago, when Alan Greenspan was boss of the Federal Reserve, a central banker in Europe remarked how much he disliked it when he saw a headline such as “Greenspan cuts rates”. The Fed’s standing was hurt by such a personalisation of its policymaking, he explained. After all, it is actually all 12 members of the Federal Open Market Committee (FOMC) who decide America’s interest rates, not just its chairman.

In India the Reserve Bank of India (RBI) and its present governor, Raghuram Rajan, are as closely entwined in the popular mind as the Fed was with Mr Greenspan. Yet on July 23rd the government published an external commission’s draft of a new financial code, which would reduce Mr Rajan’s authority over interest rates. It proposes to set up a new monetary-policy committee (MPC) with seven members: four government appointees, the governor of the RBI and two other representatives of the central bank.

The proposal was immediately condemned as an assault on the RBI’s independence, but the reality is more nuanced. Unlike the Fed, the RBI is not technically independent. The governor has the authority to set interest rates...

via The Economist: Finance and economics Business Feeds

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