Double-barrel aim at inflation, reforms

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. 8220;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,8221; he said.

The first major policy initiative by Subbarao 8212; who relinquished the post of Union finance secretary this week 8212; will be the mid-year review of the annual monetary policy on October 24. Bankers are expecting another quarter-point increase in repo rate in the October policy review. His predecessor Reddy had hiked the repo rate by 3 percentage points since 2004 to keep the economy on track and contain inflation.

Appreciating his predecessor8217;s work at the central bank, Subbarao said that Y V Reddy8217;s dignity, distinction and integrity was impeccable. Reddy too returned the sentiments by warmly welcoming him to the bank, calling him a friend 8220;for the last 30 years8221;. 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. 8220;His comments hint at the continuation of the monetary policy stance established until now,8221; said Indranil Pan, chief economist at Kotak Mahindra Bank. 8220;He is unlikely to relent on tight interest rates until inflation comes close to the central bank8217;s stated objective of close to 7 per cent by the end of March.8221;

8220;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,8221; said Abheek Barua, chief economist at HDFC Bank. 8220;He sees monetary policy as the first line of defence against inflation.8221;

With inputs from agencies

What he says8230;

8226; The immediate priority as the governor of the RBI will be to manage inflation and anchor inflationary expectations

8226; The priority in the short-to-medium term will be to pursue financial sector reforms in the context of financial stability, price stability

l YV Reddy8217;s dignity, distinction and integrity is impeccable

What he sees8230;

8226; Subbarao8217;s first major policy initiative will be the mid-year review of the monetary policy on October 24

8226; Within six months April 2009, Subbarao will have to review the RBI policy on opening up the banking sector to foreign investment

8226; Indian banks would need additional capital of Rs 5,70,000 crore in the next five years to maintain the economic growth tempo