Newspapers and markets were forecasting the Reserve Bank of India would cut its key rate by a quarter of a percentage point. But the RBI held rates and moved to a "neutral" policy stance, signalling an end to India's longest monetary easing cycle since the 2008-09 global financial crisis.
It would be positive for investment and result in disinflation among other benefits, he said, while commenting on the government's decision to demonetise high value currencies last week.
Former RBI governor Duvvuri Subbarao on Friday spoke out against the idea of having a 'moral code of conduct' for the central bank head, strongly defending the right of public intellectuals like his successor Raghuram Rajan to use the gravitas of the office for public good.
"Inflation has come down to such a low level now.. even gone below 5 percent, but now it is inching back. So achieving 4 percent inflation target by January 2018 is going to be quite challenging," Subbarao told PTI.
The 66-year-old former governor admits to being a "greenhorn" as he started his five years stint at RBI during what were turbulent times both in India and around the world.
He has also blamed then then Finance Minister P Chidambaram's reluctance to accept that the rupee was bleeding more because of domestic issues and less due to external factors like the taper tantrums
As far as the RBI is concerned, it has to balance its US dollar bets with gold. When and if the dollar falls, the fall in the value of our forex reserves will be cushioned by our holdings of gold.
Dr Duvvuri Subbarao, the previous governor of the Reserve Bank of India (RBI), has backed the demand for the central bank chief being given a veto power over interest rate decisions that are proposed to be handed over to a monetary policy committee (MPC).
In plain words, Subramanian is saying that Chidambaram left his bills for 2013-14 unpaid, and passed them on to the next government, by shifting payments to 2014-15.
The Reserve Bank governor Raghuram Rajan took charge on September 4 and soon managed to reign in the rupee's fall. Since taking charge, his two-point agenda has been inflation targeting and bank recapitalisation.
RBI has printed a set of 2014 currency notes with governor Subbarao's signature. These are largely 500 rupee denominated notes which were printed at the Dewas press in Madhya Pradesh.
Duvvuri Subbarao's inflation-fighting ways attracted several critics. Surprisingly, the market appears to still be enamored with the incumbent central banker, though he appears to be even more of an inflation "hawk".
Rajan himself admitted, while he may have started out with star ratings, he will also have to take many unpopular decisions. "Governorship of the central bank is not to win votes or Facebook likes, but to do what is right."
50-year-old Rajan will takeover a difficult assignment from Duvvuri Subbarao on his completing five years in Mint Road. Rajan has already said that he has no magic wand to face the challenge before the country but would deal with them one at a time.
Fifty-year-old Rajan, a former chief economist with the International Monetary Fund (IMF) who was economic advisor to the finance ministry, will takeover a difficult assignment from Duvvuri Subbarao on his completing five years in Mint Road.
The minutes released by the RBI on Wednesday showed that four of seven external members were in favour of no change in the policy repo rate while two members recommended a 25 basis point rate cut and another an increase by a quarter point.
Central bankers, even if they are first-rate economists, have to operate in the reality of a political economy. Their first job is not to re-read old economics textbooks or even their own academic work on the subjects of inflation, growth, exchange rates etc.
The government has appointed Raghuram Rajan, the chief economic adviser in the finance ministry, to be the next governor of the Reserve Bank of India for a three year term.
On the face of it, both central banks have responded similarly to a selloff which has reduced the value of the rupee and lira by almost a tenth against the dollar this year. Many are contrasting RBI's hesitation with the Turkish central bank's more successful efforts to stave off a currency collapse.
The HSBC Markit Services Purchasing Managers' Index fell to 47.9 in July from 51.7 in the previous month.
Last month, the RBI raised short-term rates and also placed restrictions on banks to borrow from the central bank to make funds costlier for stemming the rupee's decline.
India's annual consumer price inflation picked up in June to 9.87 percent, after slowing for three straight months. However, RBI Governor Duvvuri Subbarao says at demand level, inflation has come down
The rupee, which had tumbled to near all time lows, recovered as the finance minister talked about the new measure to tackle current account deficit. Announcements regarding sops for exporters also helped the Indian currency claw back to the positive territory.
RBI Governor Duvvuri Subbarao on Tuesday spoke of unwinding measures to tighten cash conditions once the currency stabilises, but doubts remain about how quickly the central bank can do that.
Subbarao, whose terms ends in September, had said earlier this month he wants to move on but media speculation continued that he would be offered an extension as some believe the government would prefer to make no changes until the national elections in May.