Business
'RBI governor didn't mention risk of Great Depression'
Mumbai, June 29
Clarifying on Reserve Bank of
India Governor Raghuram Rajan's recent remarks, the RBI has said a
section of the media "mis-characterised" the governor as saying that the
world is at risk of a Great Depression.
"What Governor Rajan did
say, in his remarks made off the attached written text, was that the
policies followed by major central banks around the world were in danger
of slipping into the kind of beggar-thy-neighbour strategies that were
followed in the 1930s," the RBI said in a statement late on Sunday.
"The
Great Depression was a period of great turmoil, caused by many factors
and not just beggar-thy-neighbour policies. Governor Rajan did not imply
or suggest that there was any risk of the world economy, which is in
steady recovery notwithstanding uncertainties like those in the Euro
area, slipping into a new Great Depression," the statement added.
Speaking
at the London Business School last week, Rajan said the policies
adopted by major central banks worldwide were in danger of slipping into
the kind of beggar-thy-neighbour strategies that were followed in the
1930s, and asked them to define "new rules of the game".
"I do
worry that we are slowly slipping into the kind of problems that we had
in the thirties in attempts to activate growth," Rajan said.
"We
need rules of the game in order to effect a better solution. I think it
is time to start debating what should the global rules of the game be on
what is allowed in terms of central bank action," he added.
Rajan,
who had predicted the 2008 US financial collapse, has been warning that
global markets are now at the risk of a crash due to the competitive
loose monetary policies being adopted by developed economies.
When
he took charge at the RBI in 2013, at a time the US Federal Reserve
declared its intent to wind down its stimulus programme, the rupee
plunged in value in respect of the US dollar on fears about a spiralling
current account deficit.
In a series of measures, Rajan managed to stabilize the currency that also brought back investors.
"Rajan's
disciplined and focussed approach in leading the Reserve Bank during
his first year as governor was remarkably impressive," British magazine
Central Banking said earlier this year, giving Rajan its Central Banker
of the Year Award for 2015.
In 2011, he published the acclaimed "Fault Lines" on how hidden financial fractures threaten the world economy.
Pointing
to the very low interest rate policies of the US Federal Reserve, the
Bank of Japan and the Bank of England in a bid to stimulate their
economies, Rajan has been warning that emerging markets are especially
vulnerable to big shifts in capital flows triggered by the unprecedented
monetary accommodation in rich countries.
Elaborating on the
RBI's policy stance at the time it left interest rates unchanged during
its bi-monthly monetary policy review in February, Deputy Governor Urjit
Patel described the "important backdrop" to the central bank's move.
"We
are in the midst of the age of competitive depreciation and of a
beggar-my-neighbour philosophy. It brings to mind an old African saying
that when elephants fight the grass suffers," Patel had said.
"While
the ECB (European Central Bank) and the Bank of Japan are printing
money and devaluing their currencies on one hand, the US economy is
reviving on the other. Anyone in the middle is getting crushed," he
added.