.....While one of the Deputy Governors who is in charge of monetary policy indicated that there was room for reducing policy rates, another Deputy Governor, though not in charge of monetary policy (but a member of the Monetary Policy Advisory Committee), indicated that interest rate is not a significant factor in explaining slowdown in investment and economic activity. Even as the market was miffed by such contrary signals, the Finance Minister, through his interactions with the media, almost confirmed that the RBI will take actions (to ease policy further), and even directed public sector banks to follow up with immediate cuts in lending rates. What he forgot was that after his official nomination for the President’s post, his voice as Finance Minister had lost its weight. After the announcement of the policy, he was apologetic that the Governor need not consult him for mid-quarter policy reviews, further conveying the impression that if it had been a quarterly or annual review, the RBI would have been obliged to follow the Government’s direction! Two things emerge out of this. It is well known that, legally speaking, the RBI is not that autonomous with respect to monetary or banking policy.....
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