In a recent list of the world’s top central bankers by Global Finance magazine, Reserve Bank of India (RBI) Governor D Subbarao figures in the bottom 10. Is India’s chief inflation fighter all that bad, or is Global Finance off the mark? The magazine handed out grades from “A” to “F” to 36 of the world’s most influential central bankers, based on criteria like their ability to manage inflation and interest rates, encourage growth and maintain a stable currency. Subbarao got a “B-”, although his grade improved from last year’s “C”. While that was still better than Ben Bernanke, the US Federal Reserve chairman, who got a “C” (not surprising, though steady from last year), Subbarao was rated lower than at least 2o other bankers. China’s central banker earned a “B” (an improvement from “C” last year), while the European Central Bank’s outgoing president, Jean-Claude Trichet, got a “B-”, down from “A” last year. Given the state Europe is in, the latter is not surprising, but whether China’s central bank deserves a better rating is questionable since inflation is soaring and the yuan is sliding. So which central bankers got an A then? The answer: Australia, Lebanon, Israel, Malaysia, The Philippines and Taiwan.
Let’s get this straight: These six nations have the world’s best central bankers? It sounds ludicrious, to say the least.
The central banks of nations such as Lebanon and Israel can hardly be considered central to the world economy. Their performance on inflation or other parameters is possibly the result of local factors unrelated to what the central banker did. In fact, more often than not, because of their links to larger economies, these central bankers usually follow the trend set by their counterparts in larger economies. In the process, if their economies stay buoyant, they can’t always take credit for that, since they don’t take truly independent monetary policy decisions. Indeed, in a world of heavyweight international central bankers, none of six “A” rated bankers even matter. In fact, most of us wouldn’t even know the names of the central bankers from these countries. On the other hand, central bankers of countries such as the US, the eurozone and China can move global financial markets with just one single comment. Their actions don’t follow other nations; instead, they define policy for other countries. Since the global credit crisis of 2008, most of them have been grappling with the problems of rising inflation and slowing economic growth– without any solution in sight. Their inability to boost growth even with steep cuts in interest rates has caused their ratings to fall below other smaller-country bankers such as the Australia and Taiwan.
In India, the RBI Governor has been relentlessly trying to contain inflation with 12 interest rate hikes since March 2010. Yet headline inflation remains stubbornly above 9 percent, even as economic growth has slowed. He also remains the lone interest rate hawk at a time when most of his Asian peers are rapidly turning into doves. The fact that inflation has not been stamped out is primarily because of supply side issues, global commodity prices and the government’s indisciplined spending. Put another way, Subbarao’s low rating really belongs to Pranab Mukherjee – whose budget is out of control. In his defence, Subbarao has consistently kept local economic conditions in mind while determining monetary policy. It’s hard to see how his performance could be rated worse than the central bankers of Lebanon, Thailand or even Malaysia. Given the list of central bankers who got an “A”, Subbarao deserves a better rating than “B-”.
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