-The Hindu
The central bank’s shift of focus from financial stability to inflation targeting could have led to regulatory infirmity
Inflation is back in the news and attention has willy-nilly turned on the Reserve Bank of India (RBI). This would lead us to recognise what the central bank is mandated to do and assess how much of its objective it actually achieves.
The establishment of some of the world’s oldest central banks was inspired by the goal of maintaining financial stability. It was recognised that when private commercial banks fail, whether due to malfeasance or misjudgment, they not only harm their trusting depositors, they can also take down with them the rest of the financial system.
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