Subbarao keen to retain his signature's weight

The privileges of being the Governor of the Reserve Bank of India are many. One of them is having one’s signature stamped across the millions of currency notes of various denominations churned out from the country’s mints.

Governor D Subbarao, however, indicated a governor may not always swell with pride when he stares down at his signature plastered on currency notes.

“The value I attach to my sign is not just about the validity of the currency, but to ensure the purchasing power was preserved,” Subbarao told students of the Indian Institute of Management yesterday, on being asked how he felt looking at the wad of currency notes bearing his name.

 

Inflation has emerged as a difficult problem for Subbarao and he has been forced to revise upwards the forecast for March inflation to seven per cent from the earlier 5.5 per cent. The headline number, at 8.4 per cent, is way above the perceived comfort zone of 4-4.5 per cent.

At a felicitation function for the Governor in his ancestral town of Eluru in Andhra Pradesh, a speaker had said Subbarao was very close to the hearts of people. He had reckoned that Subbarao was close to the hearts as people put the currency notes signed by him in the upper pockets of their shirts. Subbarao knows that soaring food prices are now giving heartaches to many.

Gut feel Perhaps more comfortable with the grilling by students rather than the press corps, Subbarao was full of anecdotes and wise cracks.

When asked by reporters what went into monetary policy formulation, the stock answer remains the central bank looked at a plethora of domestic and international economic and banking data to get the inflation-growth mix right. Subbarao had a different answer when the question was asked by the students.

“There is no substitute for good judgment,” said Subbarao.

Central banking works the best with a strong gut feeling, believes the governor. That, perhaps, explains why Subbarao has adopted a gradualist approach to the rise in interest rates — 175 basis points in the repo rate and 225 bps in the reverse repo rate, in seven rounds since March 2010.

He also believed in transparency, Subbarao emphasised. That is why, under Subbarao, RBI has added a new paragraph in monetary policy statements that indicates the expectations of the central bank.

“For a long time, we were non-transparent...we had our own expectations but would not tell that to markets,” Subbarao said.

The data on prices, one, however, fears, is putting paid to that gut feel as well as the ‘expectations’ down the line.

Policy snooze
While he was at the microphone, Subbarao wasn’t sure he would get rapt attention from those assembled in the IIM auditorium that morning.

The RBI governor has to deal with rather dreary and esoteric subjects that have a sedative impact on an average individual. Ironically, Subbarao’s wife Urmila is no different.

“Usually when I start talking, my wife goes off to sleep. So please stay awake,” Subbarao said, pointing to Urmila, his wife, who was among the audience.

Acknowledging the central bank’s vast canvas of operations that deal with swanky treasury rooms of multinational banks to humble dwelling of a farmer in forlorn parts of the country, the governor had another candid admission to make.

“Two-and-a-half years as the RBI governor, I am not sure what RBI does,” he said. Subbarao’s term ends this September. One hopes he gets a longer run, especially because his three immediate predecessors had a minimum five-year tenure.