India’s central bank faces a major test of its independence

CENTRAL BANKERS are not normally fiery types. But on October 26th Viral Acharya, the deputy governor of the Reserve Bank of India (RBI), brought a dispute between it and India’s government into the open with a flaming speech. Mr Acharya said that “governments that do not respect central-bank independence will sooner or later incur the wrath of financial markets, ignite economic fire and come to rue the day they undermined an important regulatory institution.” His words, which he made clear had been approved by his boss, Urjit Patel, have had incendiary effects.Arun Jaitley, the finance minister, seems to have taken them as an invitation to a trial of strength. “The nation that is India is higher than any institution,” he said the following day. Local papers reported that the government had invoked a law dating to the establishment of the RBI in 1934, never before used, that allows it to issue directions to the governor. As The Economist went to press, rumours were flying that Mr Patel might step down.
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