“ONE of the nice things about being a central bank governor is that the markets hang on to every word you say, treating every syllable, nuance, and twitch of the face as a market cue. One of the stressful things about being a central bank governor is that the markets hang on to every word you say, treating every syllable, nuance, and twitch of the face as a market cue. That about sums up both the opportunity and challenge of central bank communication.” - Duvvuri Subbarao, former RBI governor
Reserve Bank of India governor Raghuram Rajan has been anxiously tying himself up in knots this week to explain what he meant when he said in an interview that India’s economy was like a “one-eyed man being king in the land of the blind.” There are those who have sprung to his defence, and the governor has articulately clarified what he meant, but not before eyebrows went up.
If only he had read and/or digested the golden words of his predecessor Duvvuri Subbarao written just a month ago in the journal “Finance & Development,” published by Rajan’s own previous employer, the International Monetary Fund, things might have been easier for him.
Subbarao expounds on the dilemma of being the person who runs a nation’s monetary policy in the article appropriately titled, “The Signal and the Noise”
Markets world-over routinely interpret a central bank governor’s sneeze as the possibility of a severe cold. Currencies, interest rates and stocks react to a governor’s utterances and whispers. Central bank governors are stalked by market reporters and many careers (fund managers, treasury dealers, traders) are built around a governor’s words.
Rajan meant well no doubt, but he seems to have erred not once but twice. He was forced to clarify that apart from being quoted out of context, he meant no offence to blind people in his saying idiomatically that India’s economy, despite being a bright spot amid crises across the world, was below its potential.
It is no doubt a central bank governor’s job to induce sobriety and realism, but then a governors’ off-the-cuff words have the nasty habit of becoming self-fulfilling prophesies in some ways.
“Compared to the rest of the world we are growing much faster, in fact the fastest. Compared to our own potential, we can do better. So at 7.5 percent growth, any other country in the world would be celebrating,” finance minister Arun Jaitley said after news on Rajan’s US interview ruffled feathers.
At least one headline read: “Jaitley now counters Rajan’s ‘one-eyed king’ comment,” while commerce minister Nirmala Sitharaman told an interviewer: “If better words were used to say whatever he wanted to say, it would have gone down better.”
They were clearly doing some fire-fighting, after which Rajan clarified his intent.
Subbarao says ,“Experience helps but doesn’t guarantee that markets will not deem what you said something other than what you believe that you said.”
There is a Wikipedia page devoted to Fedspeak, on the ways of US Federal Reserve’s governors. One writer describes Fedspeak as a “turgid dialect of English” while Alan Greenspan, one of the most nebulous Fed governors of our times, gave rise to the expression “Greenspeak”
Over-reaction has been a common feature in markets, and it is time to add its newer variant, social media, to the discourse. We live in times where some important people, such as central bank governors, should practise ambiguity. Rajan may like to pick up some lessons from his counterpart at the Fed, Janet Yellen, who is suitably vague at times and vaguely suitable at others.
As an IIT-educated engineer, Rajan is a bit of a late entrant into the club of economists, and as an IIM-Ahmedabad trained MBA, he is doubly cursed if he thinks supreme articulation is a virtue in central banking.
There are times in life when you have to choose between being an impressive speaker at a convocation for young students and a mealy-mouthed spokesperson for hypersensitive markets and media.