Indian central bank Governor Duvvuri Subbarao's standoff with a finance ministry that wants interest rates reduced sooner rather than later may prove the defining moment of his tenure.
But while he wins plaudits for asserting the Reserve Bank of India's autonomy, Subbarao's policy draws mixed reviews.
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Indian interest rates are among the highest of all the major world economies at a time when the country is set to register its worst growth rate in a decade, yet inflation has remained uncomfortably high for nearly three years.
With his term expiring next September, Subbarao has less than a year to vindicate his stance as a hawkish global outlier.
Interest rates should come down, the question is when. The RBI has repeatedly said that depends how long the government takes to rein in a fiscal deficit, financed by heavy borrowing, that has credit rating agencies thinking about relegating India to junk bond status.
Late last month, the day before the RBI's quarterly monetary policy release, Finance Minister P. Chidambaram held a hastily called news conference to outline a roadmap for reducing India's fiscal deficit, in an unsubtle bid to persuade Subbarao to cut interest rates for the first time since April.
Three days earlier, Subbarao told Chidambaram during their pre-RBI policy meeting of his intention to keep rates on hold. He stuck to his guns, opting instead to ease policy through lower cash reserve requirements so banks had more money to lend.
By defying the very public pressure to cut rates, Subbarao has dismissed speculation that he might bend to the newly appointed minister's will, even though Chidambaram had handed him the RBI governorship during a previous stint as finance minister.
A career civil servant, Subbarao had been the most senior bureaucrat in the finance ministry, but he was new to monetary policy when he took office in September 2008, against the backcloth of the global financial crisis.
"The first 18 months he was, I think, actually very dovish, and behaved in line with expectations," said Robert Prior-Wandesforde, an economist with Credit Suisse in Singapore.
"However, he does seem to have been able to assert himself now much more and has been able clearly to shake off no doubt a huge amount of political pressure on him, and I think to some extent he should probably be applauded for so doing."
FASTIDIOUS AND FIT
Subbarao, 63, has grown into his role since those early days after the Lehman Brothers collapse, when some criticised him for going along with New Delhi's desire for an aggressive easing in policy, that also laid the ground for a spurt in inflation.
An avid walker who has a treadmill at home, the lanky central bank chief is mild-mannered and courteous in public, remembering names and eschewing formality. He can be forceful in meetings and does not hide his feelings, those who know him say.
"Inefficiency makes him angry," one bank insider said.
Fastidious, punctual, and a stickler for presentation, he pays attention to minutia like fonts and margins in documents.
"When he came to RBI he got his table designed in exactly the same size and shape as he had in the finance ministry, which presumably he had designed there as well," recalled Usha Thorat, a former deputy governor.
He has sought to make the central bank more open, doubling the frequency of scheduled policy reviews to eight per year, and ordering the minutes to be published, in line with the practice at central banks in developed economies.
Under Subbarao, the RBI began giving short-term guidance on the policy outlook. He also simplified policy by ditching a two-track rate "corridor", making the repo rate the operative policy rate.
HAWKS AND DOVES
While the RBI is not independent, it operates with a high degree of autonomy.
Subbarao held off pressure from New Delhi to cede the RBI's role as the government debt manager. He also publicly showed dislike of the then Finance Minister Pranab Mukherjee's creation of the Financial Stability and Development Council, which put the minister at the helm and Subbarao on a subcommittee.
On monetary policy, Subbarao's hawkishness has clashed with the growth-oriented leanings of New Delhi.
Persistent food inflation and a scandal-weakened coalition government with a bias towards costly populism have made Subbarao's job difficult, although he has not escaped criticism.
While inflation is safely below the double digits hit in 2010, it remains high, at 7.8 percent in September. GDP growth is expected to be as low as 5.5 percent for the fiscal year ending in March.
Surjit Bhalla, chairman of Oxus Investments and a frequent RBI critic, said the central bank has shifted the parameters for setting policy from wholesale price index inflation to core inflation to real interest rates and the fiscal deficit.
"They don't communicate their framework," he said.
After 13 rate increases between March 2010 and October 2011, Subbarao has held the policy repo rate at 8 percent since a cut in April, but has lowered the cash reserve ratio (CRR) by a combined 175 basis points since January.
Abheek Barua, chief economist at HDFC Bank in New Delhi, said the RBI could have sought more credit for cutting CRR, as a 25 basis point cut in September prompted banks to lower lending rates by the same level.
"The finance ministry hasn't got the message or is under the impression that nothing has been done on rates," Barua said. "It's turned into a bit of a silly game, where the RBI actually induced a fair bit of change in lending rates but because of this inflation bogey doesn't want to advertise it too much."
(Editing by John Chalmers and Simon-Cameron-Moore)