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Subbarao Bids Adieu to RBI After A Job Well Done


Outgoing RBI Governor D. Subbarao leaves with a parting speech that will make some snigger, but it has lessons in it for most others.

I thought he had a great first speech in 2009, by the way.

I have been a vocal critic of the loose monetary policy of the RBI, and in many ways have derided it about its inconsistent stance on inflation.. Subbarao, to his credit, changed the stance of the RBI from an age-old “If we raise rates, we risk the rupee rising” (see his first speech) to “oh come on, no one’s allowed to buy our debt anyway”.

Subbarao defends RBI’s monetary actions as the best action they could have taken with the information they had. He also talks about the Indian version of operation twist recently, saying it would do the same thing it was supposed to in the US, but as I’ve said, it’s bound to fail.

However, for all these faults, Subbarao has been one of the best central bank governors of our time. The RBI is now releasing more data than ever. They publish information consistently. Subbarao worked with a timing policy for data releases (sorely needed in India) and ensured there were recordings and transcripts of all post-policy conference sessions. He raised and lowered rates twice, and relied more on data than on hearsay. He pointed out the faults in our economic data like IIP.

He says that the reason for our high CAD was simply that the government didn’t do enough. As much as I’d like to believe that, it should have created a layer of monetary tightening even as the CAD remained too high.

And he left with a light remark on the strained relations between the RBI and the Finance ministry.

Gerard Schroeder, the former German Chancellor, once said, “I am often frustrated by the the Bundesbank. But thank God, it exists.” I do hope Finance Minister Chidambaram will one day say, “I am often frustrated by the Reserve Bank, so frustrated that I want to go for a walk, even if I have to walk alone. But thank God, the Reserve Bank exists.”

I don’t want to give a eulogy, and I don’t know if the Central Bank governor will ever read this. But Thank you, Mr. Subbarao.


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