Suitably vague or vaguely suitable
The RBI governor must weigh his words since over-reaction is common in markets and social media
‘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.” The governor 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. Central bank governors are stalked by market reporters and many careers (fund managers, treasury dealers, traders) are built around a governor’s words.
Rajan 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 governors’ off-the-cuff words have nasty habits have becoming self-fulfilling prophesies in some ways.
“Compared to the rest of the world we are growing much faster….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.
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 cryptic Fed chiefs 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. There are times when you have to choose between being impressive and being carefully ambiguous.