New Delhi: In a scathing criticism of the RBI, covering the tenure of previous two governors, the mid-year economic analysis today said that monetary policy lost its credibility between 2007 and 2013.

“For a long time, the Indian economy had been drifting without a credible monetary anchor. Since late 2013, however, this has been laudably reversed,” said the mid-year economic analysis 2014-15 prepared by Chief Economic Advisor Arvind Subramanian.

The analysis further said that for nearly six years (2007 third quarter to 2013 third quarter), “India lost monetary policy credibility, reflected in the fact that real policy interest rates were consistently negative at a time when inflation was persistently in the double digit territory.”

Y V Reddy was Governor of the RBI from September 2003 to September 2008 and was succeeded by D Subbarao, who remained the central bank chief till September 2013.

Raghuram Rajan took over as 23rd Governor of the Reserve Bank of India on September 4, 2013.

“That (non-credibility of monetary policy) has been reversed since the end of 2013, with real interest rates climbing back into positive territory, and as of today stand just above 2 per cent (as a 3-month forward looking basis),” it said.

Monetary policy credibility has been gained through important actions both by the RBI and by the government, it said.

“For its part, the RBI raised policy rates since July last year and published the Urjit Patel Committee Report, both of which signalled the move towards a flexible inflation targeting regime,” it said.

In doing so, it said, the RBI has clearly demonstrated the capacity to rein in inflation.

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