Im­prove rules for fis­cal regime: RBI

The Pak Banker - - FRONT PAGE -

A com­bi­na­tion of fac­tors rang­ing from large fis­cal deficit to sup­pressed in­fla­tion and debt dy­nam­ics have en­sured that the fis­cal dom­i­nance of the mon­e­tary pol­icy con­tin­ues to per­sist. Mak­ing this ob­ser­va­tion, the “Report on Cur­rency and Fi­nance, 2011-12 on fis­cal-mon­e­tary co-or­di­na­tion’’ re­leased by the Re­serve Bank of In­dia (RBI) pointed to new chal­lenges that had emerged in the re­cent past for its mon­e­tary pol­icy ini­tia­tives.

The report said large mar­ket bor­row­ings to fund high fis­cal deficits had, at times, led to de facto mon­eti­sa­tion of the deficit. Added to this was the in­fla­tion­ary po­ten­tial of such a large deficit. The pro-cycli­cal­ity of government spend­ing and deficit-debt dy­nam­ics had only put ex­tra pres­sures on the mon­e­tary pol­icy, the report said. The In­dian ex­pe­ri­ence, ac­cord­ing to the report, sug­gested that fis­cal rules, though nec­es­sary, weren’t suf­fi­cient to op­ti­mise the out­comes of the fis­cal-mon­e­tary co-or­di­na­tion.

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