RBI’s Rajan cautions against competitive monitoring easing

Mumbai(PTI): Cautioning against “competitive monitoring easing”, Reserve Bank of India Governor Raghuram Rajan said the “non-system” in international monetary policy poses substantial risk to growth.

Rajan pitched for stronger and well-capitalised multilateral institutions having widespread legitimacy, some of which can also provide “patient capital”.

“The current non-system in international monetary policy is, in my view, a source of substantial risk, both to sustainable growth as well as to the financial sector. It is not an industrial country problem, nor an emerging market problem, it is a problem of collective action. We are being pushed towards competitive monetary easing and musical crises,” he said while delivering a lecture organised by the Bangladesh Bank.

According to him, unconventional monetary policies include keeping interest rates at near zero levels and activities such as central banks purchasing assets in certain markets.

“I use Depression era terminology because I fear that in a world with weak aggregate demand, we may be engaged in a risky competition for a greater share of it. We are thereby also creating financial sector risks for when unconventional policies end,” Rajan said.

Calling for better international safety nets, the Governor said that efforts should be “in our own countries” to develop a consensus for free trade, and open markets.

“If we can achieve all this even as recent economic events make us more parochial and inward-looking, we will truly have set the stage for the strong sustainable growth we all desperately need,” Rajan said.

Posted by on June 12, 2015. Filed under Editorial. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.