.........The second problem with the RBI has to do with conflicts of interest. The RBI regulates banks, so it has a bias in favour of keeping interest rates low in order to hide the problems in banking, which leads to high inflation. The RBI is investment banker to the government, so it has a bias in favour of keeping interest rates low in order to easily hawk government bonds (which, too, leads to high inflation). There are several other functions, all clashing with each other. The incoherence of policy and communication at the RBI is often attributed to staff quality. It may reflect, instead, the impossibility of achieving the array of objectives that are sought to be addressed. The RBI Act was drafted in 1934 as a temporary measure. The RBI is now nearly 80 years old. It may be time to rewrite the RBI Act...........
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