Government invokes never-used powers to direct RBI governor

The 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, in a development that gives a new twist to the ongoing skirmish between RBI and the government. Section 7 of the RBI Act empowers the government to consult and give instructions to the governor to act on certain issues that the government considers serious and in public interest. This Section had never been used in independent India till now. It was not used even when the country was close to default in the dark days of 1991, nor in the aftermath of the 2008 crisis. The Central Government may from time to time give such directions to the Bank as it may, after consultation with the Governor of the Bank, consider necessary in the public interest says the Section. Using the powers under Section 7 is considered sacrilegious among central bankers as it leaves little scope for the regulator to conduct the affairs in a way they deem fit. It would also set a precedent for future governments to push through their agenda even on minor issues, if there are differences.

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