Mumbai: Reserve Bank of India (RBI) governor D. Subbarao says the monetary measures taken in the past six weeks have started showing results with liquidity returning to the system and bond yields coming down, but that the crisis is not over, yet. He adds that he is ready to take all actions, conventional and unconventional, but that he does not necessarily have to do this during half-yearly or quarterly policy reviews.
Man in charge: D. Subbarao, Reserve Bank of India governor. Abhijit Bhatlekar / Mint
In an interview with Mint, Subbarao outlined RBI’s challenge of balancing price stability, financial stability and economic growth and made it clear that every policy measure that RBI takes is the central bank’s call, though the finance ministry, along with other stakeholders, are consulted. Edited excerpts:
Four days ago, you had cut the policy rate by 100 basis points, but today your statement sounded very hawkish with a focus on inflation and high credit offtake. It looks like there are contradictions in your stance and we are confused.
Thank you for this opportunity to clear your confusion. We are going through an uncertain time. The international financial situation is very fluid and that’s transmitting to us. Nobody is able to comprehend what has been happening. Growth, price stability and financial stability are three equally important concerns for us and I am not willing to put one over another.
All along, we have taken financial stability for granted because we did not have any problem. So, the monetary policy management was (about) balancing price stability and growth. This time around, financial stability as a policy priority has come to the fore.
In a manner of speaking, the stance has shifted for balancing between growth and price stability to balancing among growth, financial stability and price stability.
Inflation is 11.07% and you cannot let your guard slip on inflation. We have injected liquidity to ease the constraints across the system and ensure flow of credit for productive purposes. As long as bank credit goes to productive sectors, we have no problem.
You are not in favour of expansionary monetary policy at this point. Is this the voice of real RBI? What we had seen in the past six weeks was a very different regulator. In fact, North Block (the finance ministry) was in the driver’s seat.
No, I don’t think so. Whatever we have done over the past one-and-a-half months have been at the initiative of RBI. What we did in the past and what we have done today is essentially RBI’s judgement. RBI and RBI alone is in the driver’s seat.
We have consulted a number of stakeholders and the government, of course, has the responsibility in a democracy for the smooth functioning of macroeconomic system. So, the government has to be consulted, but the decisions have been ours.
But RBI’s policy today is very different. Is there a shift in your stance?
I believe not. It may been some deficiencies in writing English…