Making decisions that affect millions of lives - even a routine one like a rate hike - makes the RBI Governor, Dr D. Subbarao's job an unenviable one. There is no shortage of advice - whether from industrialists, economists, bankers or even the media. And over the past month there has been a clamour for a pause in the central bank's tightening policy.

Yet, the governor chose to stay the course and effect his 13th hike in the past one-and-a-half years. Asked if this was his hardest rate hike decision, he said he thought each rate hike decision (when he made it) was the hardest decision. He said, “You can't judge this in real time. You can only judge this in hindsight”

Excerpts from a brief interaction a few hours after he announced the October policy review

You have given guidance about an expected improvement in the inflation situation from December. Given the lag in interest rate transmission and also banks' eagerness to increase lending rates but not reduce it with the same alacrity, won't that mean business sentiment could stay depressed well into the next year - even if inflation is under control. Your comments?

It is important to recognise that there are a number of other factors that influence investment decisions.

The main indicator for assessing this is that real interest rates today are lower than what they were in 2007 and 2008. So, if investment is moderating today it is not entirely because of interest rates.

Our expectation is that the guidance we have given should give comfort to investors about making long-term plans.

My understanding is that those investors will not wait for interest rates to come down because it is not clear when that will happen. They should take cue from today's policy action.

The devolvement in the last two Government securities auctions was interpreted by the market as a signal from the RBI that interest rates had peaked. Would you like to say something on this?

Yes. I would like to say something. It is that the only signalling rate of the RBI is the repo rate which is the policy rate. If there is some devolvement then that is for other reasons. There was also a misalignment between the auction cut-off and secondary market rate. I don't think either the market or analysts should read interest rate signals from our devolvement decisions.

Experts say that the 10 per cent currency depreciation over two months is equivalent to a 50 basis point cut in interest rate. Would your 25 basis point hike be enough to offset this?

It is true that currency depreciation is equivalent to monetary easing. Currency depreciation has neutralised the advantage of softer commodity prices and to the extent added to inflationary pressures.

If your question is whether we are going to use movement in the rupee for anti-inflationary purposes, the answer is no. That has never been our policy, nor is it our policy now. Intervention in forex market to manage exchange rate is motivated by concerns that are different from inflation management.

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