RBI raises concerns on separation of DMO from Central Bank

The Reserve Bank of India (RBI) showed concerns on separation of Debt Management Office (DMO) from Central Bank. The government had proposed to make DMO an independent body under the ambit of finance ministry. This would be accountable for managing the government’s borrowing programme. With the increased government’s borrowings over the last few years the separation of DMO from Central Bank had gained the central stage.

As per RBI governor D Subbarao there is no conflict of interest between the debt management and the Central Bank. As per him only the Central Bank had the requisite market gauge and instruments which will help in making contextual judgments. As per him an independent debt agency, driven by narrow objectives would not be able to handle it.
As per RBI advantages of transferring debt management operations out of the central bank are exaggerated. The advantages that were stated were higher transparency, helping in debt consolidations, lowering cost of debt and resolving conflict of interest.
RBI opined that these benefits may work in few nations, but in case of India where the government borrowings are huge, sovereign debt management surpasses the exercise of merely resource raising.

Month: Current Affairs - September, 2012