It was baptism by fire: Subbarao on early day as RBI guv

“It was baptism by fire,” Duvvuri Subbarao said, as he recounted his early months as governor of the Reserve Bank of India (RBI) in 2008, a time when Lehman Brothers collapsed and pushed the global financial sector into a “near death” experience.

“I was plunged into crisis management even before I could settle into the job,” Subbarao said here at the launch of his book Who Moved My Interest Rates?.

The 66-year-old former governor admits to being a “greenhorn”, as he started his five years stint at RBI during what were turbulent times both in India and around the world.

Subbarao was the 22nd governor of RBI, from September 5, 2008, till September 4, 2013.

“What complicated crisis response was also the fact that he was an unknown and markets barely had time to size him up, understand his policy orientation and interpret his communication and body language,” Subbarao said. Launching the book at the South Asian Diaspora Conference in Singapore, the civil servant-cum-economist said his entire five-year term at the helm of RBI was marked by one crisis after another.

Even as India recovered from the crisis sooner than most other emerging markets, there was hardly any respite as RBI had to battle a decade high inflation. In the final year of his tenure at RBI, he had to mount a defence of the exchange rate which fell steeply as a result of the taper tantrums.

The objective of the book, according to Subbarao, is not so much to defend his record or establish his legacy but to explain the circumstances in which acted. The book is also an attempt, said Subbarao, to demystify the RBI, so that people understand what the central bank does and how it impacts their lives.

“Only when there is such broad based understanding can people hold the Reserve Bank to account for results. To believe that RBI is fixated on inflation and does not care about growth is wrong,” asserted the former governor.

RBI tries to maintain price stability, low and steady inflation, which is a necessary condition for sustainable growth, he added.

Speaking of his challenges in defending the exchange rate in the midst of the taper tantrums, the former governor said that predicting market traction to policy moves can be very difficult as markets respond in very unpredictable ways in crisis times.