India Insight

Subbarao: an RBI governor who can hold his own

When RBI Governor Duvvuri Subbarao had his tenure extended last year, a TV channel reported that 90 percent of bankers, economists and bond dealers in a poll felt the extension was good for the economy.

In June 2012, less than a year later, people were criticising him for defying widespread calls to cut interest rates, as stubborn inflation continued to bother him more than slowing growth .

Subbarao’s latest decision on Tuesday to hold the central bank’s key policy rate steady may increase the number of his detractors.

The RBI governor has always maintained that his focus is on fighting “sticky” inflation, which hurts the poor, and “some sacrifice to growth is an inevitable price“.

While pro-growth lobbies and Finance Minister P. Chidambaram might not agree entirely with the governor’s view, Subbarao has shown that it is tough to convince him to cut rates for vague fiscal plans.

RBI plays wait-and-watch game as politics dominates

Not surprisingly, the Reserve Bank of India (RBI) kept the repo rate on hold on Monday, just days after the Congress-led government dropped a cluster bomb of several reform measures on “big bang Friday”. #gallery-1 { margin: auto; } #gallery-1 .gallery-item { float: left; margin-top: 10px; text-align: center; width: 33%; } #gallery-1 img { border: 2px solid #cfcfcf; } #gallery-1 .gallery-caption { margin-left: 0; } /* see gallery_shortcode() in wp-includes/media.php */ A rupee coin is seen in this picture illustration taken in Mumbai Duvvuri Subbarao, governor of the Reserve Bank of India Prime Minister Manmohan Singh

Though most experts thought that the RBI would not cut rates on Monday, markets were hoping that central bank governor Duvvuri Subbarao would oblige them just a little bit. The Sensex ended 78 points higher, but was up 200 points in anticipation.

Considering the state of the Indian economy and governance, the reforms did not merit immediate rate action. Market and economy watchers should be patient and wait for FDI — “foreign direct investment” — approvals to go through.