Reserve Bank of India Signs MoU with Australia and New Zealand

November 8, 2013 Posted by India Briefing Reading Time: 2 minutes

Nov. 8 – The Reserve Bank of India (RBI) has signed a memorandum of understanding (MoU) with the Australian Prudential Regulatory Authority and the Reserve Bank of New Zealand this week during Deputy Governor K.C. Chakrabarty’s visit to the two countries.

The new MoU establishes “supervisory cooperation and supervisory exchange of information” between Australia and New Zealand’s monetary authorities and the RBI, according to a press release issued by the Indian government today.

As signatories to the MoU, India, Australia and New Zealand will increase monetary cooperation through frequent meetings of high-level officials and on-site visits between government representatives. The deal will encourage greater sharing of monetary strategies between the countries to create stronger economic ties and market stability.

“[The] MoU is a process for strengthening co-operation between supervisors. This is done through pre-identified contact points, which makes it easier for either supervisor to get in touch with their counterpart in a far easier manner,” said the Indian press release.

The agreement stipulates that all exchanges of information relating to monetary policy are to remain confidential and strictly between reserve bank representatives and top government officials.

Global effects of domestic monetary policy

With the growth of foreign currency reserves, changes in domestic monetary policy now have a greater impact on the global economy than ever before. An increase in interest rates or expansion of the money supply by one country will affect the value of other countries’ reserves and may have substantial positive or negative impacts on their economic situation.

According to a report released by the World Economic Forum, “concerns are rising about how well some countries will fare once monetary policy stimulus in the developed economies unwinds.”

Abrupt changes in monetary policy may also “bring volatility to the capital markets,” said International Monetary Fund’s Deputy Managing Director Min Zhu.

By facilitating the exchange of policy agendas between monetary officials, India’s recent MoU hopes to minimize the occurrence of sudden monetary policy changes by allowing for greater coordination between the participating countries’ reserve banks.

India has now signed a total of 18 similar arrangements with countries around the world.

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