Hyderabad: Reserve Bank Governor D Subbarao said on Friday that making the monetary policy independent of fiscal policy is an important reform measure for the country.

Saying that coordination between monetary and fiscal policies has become a challenge, he said the government’s huge borrowing programme came in the way of the monetary policy objective of a lower interest rate regime.

The Reserve Bank cut its policy rates several times since October “hoping interest rates will come down, but the borrowing programme has militated against it,” Subbarao said.

The first challenge going forward is to manage the coordination between monetary and fiscal policy...this very rapid expansion in the borrowing programme has impeded monetary transmission,” he said.

The Governor said that it is too early to take action on inflation, which fell to a 33-year low of minus 1.74% for the week ended 1 August.

The second challenge, Subbarao said, is defining the mandate of central banks and reforming the regulatory architecture.

In the midst of the global financial crisis, central bank governors have become unlikely heroes. “Some of them have rock star status” as they are seen as part of the solution, he said.