Financial stability a more desirable goal than quantitative easing: Subbarao

Central banks have a more important role of helping to achieve financial stability through monetary policy rather than quantitative easing through a low or zero interest regime, Reserve Bank governor Duvvuri Subbarao said today.

Addressing a gathering at the C D Deshmukh memorial function, he said central banks needed the necessary independence to make monetary policy decisions.

RBI has repeatedly been airing concerns about inflationary pressures even as it kept interest rates on hold since April. The central bank, however, is under increasing pressure from the government to cut interest rates to augment credit flows.

Subbarao, however, showed some flexibility while announcing a "reasonable likelihood" of monetary policy easing in the January-March quarter with an easing of inflationary pressures.

He said there has been an ongoing debate on the exact role of central banks in preserving financial stability and the use monetary policy to pursue financial stability as also the policy instruments to pursue the financial stability objective.

However, he said, the role of the central bank in all these is directly linked to its independence. He cited the example of Bank of Japan, which has been under constant political pressure to target higher inflation to give more room for growth stimulus.