"Markets watch keenly, and if uncertainty grows and confidence in central bank independence and credibility erode, then markets rap bond yields and exchange rate on the knuckles," he added.
He also noted that the market also forces central banks to remain accountable and independent when it is under government pressure.
"The presence of this third player -- the market -- in the back and forth between a government and the central bank (more generally, regulatory institutions) is an important feedback mechanism," the Deputy Governor said.
Speaking of the current challenges to the RBI's autonomy, he mentioned limited powers with the central bank in taking actions against public sector banks (PSBs) as a major limitation.
"The Reserve Bank is statutorily limited in undertaking the full scope of actions against public sector banks -- such as asset divestiture, replacement of management and Board, license revocation, and resolution actions such as mergers or sales -- all of which it can and does deploy effectively in case of private banks," Acharya said.
He also said that having a strong balance sheet and adequate reserves is an important part of the central bank's independence from the government.
"A thorny ongoing issue on this front has been that of the rules for surplus transfer from the Reserve Bank to the government," he observed.
He also reiterated the RBI's dissent to the creation of separate payment's regulator for oversee payment and settlement systems.
"A final issue is one of regulatory scope, the most recent case in point being the recommendation to bypass the central bank's powers over payment and settlement systems by appointing a separate payments regulator."
The RBI on October 19, 2018 published a dissent note against the recommendation to appoint a separate payments regulator.
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