duvvuri subbarao : interview with the wall street journal interview with dr duvvuri subbarao, governor of the reserve bank of india, in the wall street journal, conducted by alex frangos and originally published on wsj online on 13 february 2012. * * * the transcript can also be viewed at http : / / online. wsj. com / article / sb10001424052970204795304577221253451295374. html reserve bank of india gov. duvvuri subbarao sat down with the wall street journal to talk about his efforts to restart india ’ s growth engine and to fight persistent inflation. speaking from the 18th floor of the reserve bank headquarters overlooking mumbai, mr. subbaro touched on a range of issues, including the rbi ’ s efforts to stabilize the plunging rupee in late 2011, his calls for cuts to government spending, and how it was difficult to increase interest rates several times over the objection of a panel of advisors. following is an edited transcript of the conversation : wsj : what is your monetary policy stance right now, are you easing credit conditions or are you in neutral? subbarao : it ’ s difficult to say what is neutral. but we give guidance in our quarterly policy statements in october and again in january, which is to say that the tightening has peaked, and from here onwards, it ’ s that we ’ ve got to come down, that we have to start easing. there was some question as whether the crr ( cash reserve ratio ) cut we had done in the january policy was a signal of easing. it depends on how you interpret that. but historically the reserve bank has viewed the crr as a monetary policy instrument with of course liquidity dimensions. so it was both to signal that the interest rate cycle has peaked and also to infuse liquidity. wsj : so was it easing or not? subbarao : i would say it was easing to the extent we had eased the liquidity situation and we viewed the crr as a monetary policy instrument. wsj : you got applause for holding the government ’ s feet to fire on the growth in the fiscal deficit in your january policy statement, saying such spending is fueling inflation. you have talked about this issue in the past, but never so pointedly. critics say you should have done so earlier. what ’ s your

like to wrap up with a brief discussion of some of the other decision points we will encounter as we continue the process of normalizing our balance sheet. in particular, what does the committee judge to be normal in regard to the type and duration of assets that we will hold? on composition, in line with our previously announced normalization principles, i favor a return to a balance sheet with all treasury securities, allowing our mortgage - backed securities ( mbs ) holdings to run to zero. in those principles, we also state that while we do not expect sales of mbs as part of the normalization process, later we would be open to limited sales to reduce or eliminate residual holdings of mbs. in regard to duration, moving to shorten the duration of our 2 / 3 bis central bankers'speeches holdings could increase the fed's ability to affect long - term interest rates if the need arose. however, it might be preferable to have the composition of our treasury holdings roughly match the maturity composition of outstanding treasury securities, minimizing any market distortions that could arise from our holdings. over the course of our upcoming meetings, i look forward to what promises to be an interesting discussion on these issues with my colleagues. finally, in assessing our balance sheet policy, it is important to point out that the fed remains entirely focused on meeting its statutory dual - mandate objectives of maximum employment and price stability. the normalization of the balance sheet is not a competing goal. if ever it appears that our plans for the balance sheet are running counter to the achievement of our dual - mandate objectives, we would quickly reassess our approach to the balance sheet. 1 these remarks represent my own views, which do not necessarily represent those of the federal reserve board or the federal open market committee. 2 for more information, see the committee ’ s statement regarding monetary policy implementation and balance sheet normalization, which is available on the www. federalreserve. gov / newsevents / pressreleases / monetary20190130c. htm. board ’ s website at 3 the committee ’ s policy normalization principles and plans were adopted on september 16, 2014, and can be found on the board ’ s website at www. federalreserve. gov / monetarypolicy / files / fomc _ policynormalization. pdf. the fomc adopted addenda to the policy normalization principles and plans on march 18, 2015 ( pdf ), and