Separating debt from monetary management

Abstract

The joint approach for debt and monetary management does not augur well for transparency in both, especially when the central bank is balancing different objectives. The separation of debt from monetary management in India has once again been postponed. First, on the basics, the main objective of debt management is to minimise the cost of borrowings over the medium to long run, consistent with a prudent degree of risk. Historically, there was a consensus among practitioners until 2008 to treat debt management as a separate policy instrument from monetary policy. A number of countries with liberalised financial markets and high levels of government debt sought to adopt professional debt management techniques to save cost and to provide policy signals to the market. The trend started with New Zealand, a country from where inflation targeting originated, in the 1980s, with the government recognising the need for proper policy assignment and an accountability framework for debt management to meet the fiscal targets of the government. Also, the debt crises of 1982 and the East Asian financial crisis of 1997 led many more countries, including the UK, to separate debt from monetary management. Read more at: https://www.financialexpress.com/opinion/separating-debt-from-monetary-management/71211/