Govt softens stand in tiff with RBI, says it respects autonomy

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The currency fell as much as 0.5 percent to 74.0575 per dollar on Wednesday, after the Economic Times reported that the government invoked a rarely-used power to direct the central bank on matters of public interest.

Acharya's comments gave an indication that the central bank is pushing back hard against government pressure to relax its policies and reduce its powers ahead of a general election due by next May. Economic Affairs Secretary Subhash Chandra Garg declined to comment, while Finance Secretary Hasmukh Adhia said it was for the Department of Economic Affairs to clarify on Section 7 of the law. I don't know what the central bank was doing.

RBI governor Urjit Patel versus Centre LATEST updates: As expected, the government has rightly chosen not to escalate the matters further.

The counsel representing RBI had said that Section 7 of the RBI Act "embodies and puts in place a forum for resolution of all questions and is in one sense the repository mechanism for dealing with issues which constitute a "conflict zone".

Government officials were "very upset" with the RBI for publicly talking about a rift with the government, fearing it could tarnish the country's image among investors, Reuters reported. During the hearing, the government had remained silent on whether it wants to invoke Section 7 of the RBI Act to issue directions to the regulator or not. The central bank has received letters from the government seeking Governor Urjit Patel's views on issues including its handling of weak state-run lenders, tight liquidity in the market, and resolving bad loans at power generators, the people said, asking not to be identified because they aren't authorized to talk to the media.

In open letter, All India Reserve Bank Employees Association says govt must desist from nibbling at central bank's autonomy and let it do its job in an unfettered way, else it will incur the wrath of financial markets. Arguing against the Centre's proposal, the RBI had said, "The digital payments have made good and steady progress".

The government has written to the RBI hinting it may invoke Section 7 of the Reserve Bank of India Act 1934 - a provision that has never been used since the inception of the law - to issue directions on relaxing prompt corrective action (PCA) norms, liquidity to non-banking financial companies (NBFCs), among others, sources said.

Union Finance Minister Arun Jaitley during a press conference in New Delhi.

Sources in the ministry of finance told Firstpost that Section 7 of the RBI Act has not been invoked.

However, there was no sign of resignation by Patel at the meeting, officials said.

This temporarily takes away the RBI's independence and autonomy.