Double-barrel aim at inflation, reforms

After signing the document for fidelity and secrecy at the bank’s central office on Mint Street, Subbarao said, “The immediate priority will be to manage inflation and anchor inflationary expectations.”

While it does not seem to be the best time to take over as the governor at the present inflation levels, the figures of the last two weeks will definitely provide him some comfort.

Annual inflation has eased from a peak of 12.63 per cent in early August to 12.34 per cent later in the month, but is still at its highest levels since the current price series began in the mid-1990s.

Subbarao who has a three-year term, emphasised that he would like to proactively continue the chain of reforms that has started in the country. “The priority in the short-to-medium-term will be of course to pursue financial sector reforms in the context of financial stability, price stability, and above all with an ear firmly to the ground on the real sector reforms,” he said.

Appreciating his predecessor’s work at the central bank, Subbarao said that Y V Reddy's dignity, distinction and integrity was impeccable. Reddy too returned the sentiments by warmly welcoming him to the bank, calling him a friend “for the last 30 years”. Reddy had earlier this week said that he would settle down in Hyderabad.

Analysts expect Subbarao to keep monetary policy tight after recent aggressive rate increases by his predecessor. “His comments hint at the continuation of the monetary policy stance established until now,” said Indranil Pan, chief economist at Kotak Mahindra Bank. “He is unlikely to relent on tight interest rates until inflation comes close to the central bank's stated objective of close to 7 per cent by the end of March.”

“The kind of statements the new governor has made as the finance secretary, it appears he is very much in favour of a tight monetary policy,” said Abheek Barua, chief economist at HDFC Bank. “He sees monetary policy as the first line of defence against inflation.”

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