Central banks and the rule of law

In a constitutional democracy, the RBI is bound by the law to focus on its core mandate

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Illustration: Binay Sinha

K P Krishnan
Two recent developments in India underline the need to imbue the rule of law in the functioning of central banks (CBs).

The Reserve Bank of India (RBI) legally became an inflation targeting CB in 2016. The Monetary Policy Committee (MPC) normally makes policy announcements in line with a predictable schedule. But on May 4, it went off the schedule and increased the policy rate by 40 basis points. Markets were surprised by this and the 10-year government bond yield jumped. Why did the RBI do this? As has been emphasised by many, nothing in the inflationary outlook had changed between
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First Published: May 19 2022 | 2:23 AM IST

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