Financial stability is RBI's north star, says RBI chief

Reserve Bank of India (RBI) Governor Sanjay Malhotra said during a recent speech that the central bank's foremost priority and key objective is to ensure financial stability in the system. Financial Stability is defined as a condition in which the financial system comprising of financial intermediaries, markets and market infrastructure is capable of withstanding shocks and the unravelling of financial imbalances, thereby mitigating the likelihood of disruptions in the financial intermediation process which are severe enough to significantly impair the allocation of savings to profitable investment opportunities, he said. For us in the Reserve Bank, financial stability remains the north star, because we realise that short term growth achieved at the cost of financial stability can have bigger consequences for long-term growth, the governor stated. Research shows that financial instability may not only more than offset the gains of higher short-term growth, but also make recovery more distressful and longer. He further added that although financial stability remains the bedrock, there are other objectives, occasionally overlapping, yet distinct which include prudential aspects, conduct related measures for consumer protection; assistance in law enforcement and broad socio-economic objectives.

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