Rupee trading at less than 73 to a dollar, Brent crude below $73 a barrel, markets up by over 4% during the week an… https://t.co/odLeTt4R5i — Subhash Chandra Garg (@SecretaryDEA) 1541136220000

Stocks surged and the rupee gained the most in five years, prompting economic affairs secretary Subhash Chandra Garg to take a dig at Reserve Bank of India ( RBI ) deputy governor Viral Acharya over his recent comments on regulatory autonomy. The tweet underscored the latest confrontation between the government and the central bank, signalling that the pot is still simmering.“Rupee trading at less than 73 to a dollar, Brent crude below $73 a barrel, markets up by over 4% during the week and bond yields below 7.8%. Wrath of the markets?” Garg tweeted on Friday.Acharya had issued his warning in an October 26 lecture.“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,” he had said. “Their wiser counterparts who invest in central bank independence will enjoy lower costs of borrowing, the love of international investors, and longer life spans.”He had also sought to explain why undermining RBI’s autonomy would be “potentially catastrophic” and “trigger a crisis of confidence in capital markets”.But with the Indian markets changing direction, investor sentiment has suddenly turned positive. The combination of softer crude and a stronger rupee should also help reduce fuel prices, which will add to the feel-good factor. A November 19 meeting of the RBI board is being seen as an occasion for both sides to discuss their differences.Garg’s tweet came barely two days after the finance ministry issued a statement underscoring the importance of RBI’s autonomy.The statement had been interpreted by some as an attempt by the government to calm the waters.This followed ET reporting on October 31that the government had invoked Section 7, a provision that had never been used before, to initiate consultations on three key issues — the transfer of reserves, the Prompt Corrective Action (PCA) framework for weak public sector banks and liquidity management. The finance ministry had said that the central bank’s autonomy, within the framework of the Reserve Bank of India Act, was an “essential and accepted governance requirement”.Policy watchers said the differences between the two had been building up for a while as the RBI was not used to an assertive central board — to which the government recently made appointments corner with the invoking of Section 7.The government on the other hand is said to have found it difficult to communicate its concerns to what it felt was a nonresponsive RBI.Acharya’s speech put the spotlight on a delicate relationship that was facing turbulence. A day after Acharya’s October 26 speech, finance minister Arun Jaitley had said regulations need to be tailored to the situation on the ground. And, on October 30, Jaitley questioned the role of the central bank in the bad loan crisis, saying that the regulator hadn’t done enough to prevent it.