As RBI chief, Reddy preferred a tighter monetary policy

Former Reserve Bank of India (RBI) governor Yaga Venugopal Reddy today said he would have preferred a tighter monetary policy as managing inflation and inflationary expectations were crucial to keep the economy growing.

“Obviously, if I had my way, it would have been tighter. In fact, the determination and inclination was to keep it as tight as I could… Nobody can have his or her way in public policy and family life,” he told reporters hours after new RBI Governor D Subbarao assumed charge.

Despite moving out of Mint Road, where he spent 11 years, first as a deputy governor and then as governor, Reddy’s stance remained unchanged.

Similarly, when asked about allowing the rupee to appreciate, Reddy said a deep appreciation was not feasible given the high level of fiscal deficit, trade deficit and current account deficit. “It should be market determined but volatility should be avoided,” he said, advocating a mix of tools to manage exchange rates.

Regarding the criticism on exchange rate management, he said the policy was consistent with what was happening earlier and India had been rated highly on this count.

The former RBI governor supported fuller capital account convertibility, adding that fiscal situation posed risks.

At the same time, he said policymakers should get the macroeconomic factors in place so that “capital account convertibility takes place before de-facto capital account convertibility” due to advanced technology.

Reddy, however, played down differences with the finance ministry, saying the central bank had reasonable autonomy, followed a harmonious approach on policy issues and there was coordination on reforms.