Subbarao's parting shot to Chiddu: Don't blame RBI for rupee's worries

You may disagree with the way outgoing RBI Governor D Subbarao handled the interest rates during his tenure but his determination to not cede to the political bosses the very little independence the central bank enjoys will not go unnoticed.

He held his ground, until the very end of his career at the RBI.

In his last public speech yesterday, Subbarao blamed the government for the rupee’s worries, defended his interest rate defence and also hoped some day the finance minister will recognise the RBI’s action were correct too.

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He even alluded directly to Chidambaram’s earlier statement that the government is ready to walk alone on the growth path, if the RBI is not helping it.

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“A final thought on this issue of autonomy and accountability. There has been a lot of media coverage on policy differences between the government and the Reserve Bank. Gerard Schroeder, the former German Chancellor, once said, ‘I am often frustrated by the Bundesbank. But thank God, it exists’. I do hope Chidambaram will one day say: ‘I am often frustrated by RBI, so frustrated that I want to go for a walk, even if I have to walk alone. But thank God, the Reserve Bank exists’,” Subbarao has been quoted as saying in the media reports.

For all the pain he inflicted on Chidambaram, Subbarao also applied a balm, so to say, when he said the blame for not bringing down the CAD rests on the government.

According to a report in the BS, he said the current account deficit, which has brought about the present predicament of the rupee, could have been controlled had the government used the breathing time it got from the higher global liquidity.

“Had we used the breathing time that this gave us to address the structural factors and brought CAD down to its sustainable level, we would have been able to withstand the ’tapering’ of the ultra-easy policy of the US Fed. In the event, we did not do so and made ourselves vulnerable to sudden stop and exit of capital flows driven by global sentiment; the eventual cost of adjustment, too, went up sharply,” Subbarao has been quoted as saying.

These words, according to the BS report, echo Chidambaram’s statement a day earlier.

“There are not just external factors, there are also domestic factors. One of the domestic factors is that we allowed fiscal deficit to be breached and we allowed current account deficit to swell because of certain decisions that we took during the period 2009 to 2011,” the minister had told the Rajya Sabha.

What these words suggest is that had then finance minister Pranab Mukherjee handled the mess better, it could have been easier to save the rupee now.

Reacting to Subbarao’s comments, Chidambaram said that they are in line with his words, the BS report said.

However, Subbarao was also admitted to his mistakes.

“With the benefit of hindsight, I must admit in all honesty that the economy would have been better served if our monetary tightening had started sooner and had been faster and stronger,” PTI reported Subbarao as saying.

Subbarao joked that he may be remembered as ‘baby steps Subbarao’ for this.