Rajan warns against low rates worldwide
INDIA’S outgoing central bank chief Raghuram Rajan warned countries against a rush to low interest rates as his tenure as governor of the Reserve Bank of India came to an end.
Mr Rajan told the New York Times that central banks across the world would find it hard to raise rates again for fear this “would see growth slow down”.
The 53-year-old, who clashed with the Indian government over the speed of cuts, said low interest rates should not be an alternative to reforms that may be needed to boost growth.
Interest rates are low across many major economies, including in the US, Europe, and Japan – where rates are in negative territory – but they have yet to stimulate a sluggish global economy.
“Often when monetary policy is really easy, it [low interest rates] becomes the residual policy of choice,” Mr Rajan said, adding that “other instruments of policy” may be needed to encourage economic growth.
Mr Rajan, who was immensely popular amongst the Indian public and media during his tenure, officially stepped down on September 4, with deputy governor Urjit Patel taking over.
Mr Rajan was widely credited with bringing inflation down, stabilising the rupee and creating a stable environment for growth.
In a separate interview with the Financial Times, Mr Rajan predicted that his reforms, including setting inflation targets and tackling bad bank loans, would continue.
“Broadly speaking, I think we have sort of unfrozen an older equilibrium and moved the system towards a new equilibrium. My sense is that momentum cannot be and will not be arrested,” he told the paper. –
Raghuram Rajan says countries would find it hard to raise rates again.