'Baby-steps' Subbarao admits he was slow to tighten rates

Outgoing RBI Governor Duvuuri Subbarao on Thursday conceded that he should have acted faster in reversing the easy monetary policy stance after inflation resurfaced post-2008 crisis, and also joked that he may be remembered as "baby-steps Subbarao" for it.

"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," Subbarao said in his last public speech as the 22nd Governor of the RBI, as he delivered the 10th Nani A Palkhivala memorial lecture in Mumbai on Thursday evening.

However, he said he had been taking the so-called "baby-steps" in real-time and not in hindsight.

"Because we had a classic V-shaped recovery from the 2008 crisis, that growth had not dipped in the Lehman crisis year as low as had been feared, and that growth in the subsequent two years was stronger than earlier thought.

"But remember, all this is hindsight whereas we were making policy in real-time, operating within the universe of knowledge at that time."

In this context, he also underlined the need for having faster and more reliable economic data for effective monetary policy calibration.

The Governor poked fun at himself on the so-called "baby-steps", saying, "in fact, when I leave the Reserve Bank, I will be remembered as "baby-steps Subbarao."

Defending his actions in the past five years, Subbarao said some people criticised him for being dovish, while some blamed him for being hawkish in his anti-inflationary stance.

Admitting that growth has moderated from over 9 per cent even after the crisis, he said it is unfair and inaccurate to blame it on tight monetary policy.

"I do not agree with the argument that the Reserve Bank failed to control inflation but only ended up stifling growth.

Yes, growth has moderated, but to attribute all of that moderation to tight monetary policy would be inaccurate, unfair, and importantly, misleading as a policy lesson," and that the reasons for slowing economic activity are "a host of supply side constraints and governance issues, clearly beyond the purview of the Reserve Bank," the Governor said.