Asking the government and RBI to keep their differences “behind the closed doors”, former Governor D Subbarao has said the central bank must prevail when it comes to the monetary policy and any disagreement should not matter as long as it exerts its autonomy.
Subbarao, a career bureaucrat who was Finance Secretary before moving to the central bank, also said the governor should be sensitive to the government’s point of view, but at the same time the latter must respect the autonomy of RBI.
Subbarao, whose just-released tell-all memoir about his days as RBI governor between 2008 and 2013 lists several instances of differences between the government and the central bank, including on interest rates, also opined that the new framework for setting rates through the Monetary Policy Committee (MPC) might enhance Reserve Bank’s autonomy.
In an interview, Subbarao told PTI that such differences would always remain as governments in a democracy are driven by election cycles and therefore give priority to growth over inflation, while the central banks tend to take a long-term view on price stability that may entail sacrificing growth in the short term.
In the book titled ‘Who Moved My Interest Rate’, Subbarao has written about many run-ins with the two finance ministers during his tenure at the central bank — Pranab Mukherjee and P Chidambaram — while he also credited the latter for pushing his name for the top job at RBI.
Asked about the impact on the functioning of RBI from differences between North Block (where Finance Ministry is housed) and the Mint Road (where RBI is headquartered), the career bureaucrat said, “To the extent that Reserve Bank exerts its autonomy and to the extent that the governor prevails, it won’t have an impact on Reserve Bank.”
“But it does send confusing signals to the market to the extent if they perceive that there are differences between the Government and the RBI,” Subbarao said, while adding RBI and the government should be free and frank in discussing the issues and their differences should be behind the closed doors.