Wrong move, RBI!

Less than a week after RBI deputy governor K C Chakrabarty told some journalists, off the record, that the RBI should be more aggressive in raising interest rates to combat inflation, he has been stripped of key portfolios. The RBI governor, apparently, did not take kindly to his deputy going public with his views and has reshuffled the portfolios of the central bank’s deputy governors, leaving his ‘errant’ deputy with just four relatively-minor departments and loading more on to the already-full plates of the other deputy governors. This is most unfortunate.

Not only because Chakrabarty, as the only deputy governor with practical knowledge of commercial banking, brings a wealth of hands-on experience , but also because it marks a departure from the RBI’s democratic style of functioning. Given how notoriously difficult it is to formulate monetary policy in increasingly uncertain times, differences of opinion among the top echelons of the RBI are not only inevitable but, perhaps, even desirable as they promote healthy debate. Chakrabarty is known to speak his mind. He had, for example, contradicted the then-finance minister P Chidambaram on the future trajectory of interest rates, without ministerial wrath descending on him.

Far from suppressing dissent — the central bank is not the Army! — a discreet airing of dissent would stand the RBI in good stead. It would allow it to test the waters; a much-needed test given how much the dice is loaded against the central bank in its regular battle with the finance ministry on tightening monetary policy.

In any case, it is time to review the consensus-style decision-making of the kind favoured by the RBI, as distinct from decision-making by voting, favoured by the US Federal Reserve and the Bank of England monetary policy committee. In the US Fed, board members routinely air their different views and no one would say US monetary policy is any the worse for it. In the UK too, details of the way members of the MPC vote are made public , albeit after a lag. Gag orders belong to the Gulag; they have no place in a modern-day central bank.