Cen­tral banks shouldn't prop up fall­ing stock prices: Ra­jan

The Pak Banker - - FRONT PAGE -

Re­serve Bank of In­dia Gover­nor Raghu­ram Ra­jan called on cen­tral banks to avoid giv­ing "booster shots" to stock mar­kets as Asian shares fell the most since 2011.

"It is not the role of the cen­tral bank to el­e­vate sen­ti­ments un­duly, to de­liver booster shots to the stock mar­ket so that it can soar for a while, only to col­lapse when re­al­ity hits," Ra­jan told a con­fer­ence in Mum­bai on Mon­day. "We do not have to look far be­yond our borders to see the con­se­quences of such boos­t­er­ism." More than $5 tril­lion has been wiped off the value of stocks world­wide since China's yuan de­val­u­a­tion stoked con­cern global growth is fal­ter­ing just as the U.S. Fed­eral Re­serve con­sid­ers rais­ing in­ter­est rates. Selling pres­sure en­gulfed In­dia to­day as the S&P BSE Sen­sex in­dex fell 4 per­cent and the rupee slid 1 per­cent in Asia's sec­ond-worst per­for­mance.

Ra­jan, a for­mer chief economist at the In­ter­na­tional Mon­e­tary Fund, said In­dia is in a "good po­si­tion" com­pared with other emerg­ing mar­kets due to strength­en­ing eco­nomic growth, mod­er­at­ing in­fla­tion, low short-term cur­rency li­a­bil­i­ties and a nar­row­ing fis­cal deficit. Asia's third-big­gest econ­omy has about $380 bil­lion in re­serves, he said.

"We will have no hes­i­ta­tion in us­ing our re­serves when ap­pro­pri­ate to re­duce volatil­ity in the rupee," Ra­jan said. "Once mar­ket volatil­ity set­tles down, In­dia should emerge once again as an in­vest­ment des­ti­na­tion of choice."

Ra­jan has re­sisted pres­sure in re­cent weeks from In­dia's Fi­nance Min­istry to add to three in­ter­est-rate cuts this year. He said the cen­tral bank uses a num­ber of mod­els to forecast in­fla­tion and doesn't rely on a "seat-of-the-pants ap­proach" to set­ting mon­e­tary pol­icy.

"I want rate cuts to not be seen as good­ies that the RBI gives out stingily af­ter much public plead­ing," Ra­jan said. "Rate cuts are a nat­u­ral con­se­quence that I can as­sure you the RBI will have no hes­i­tancy in de­liv­er­ing once we can be as­sured of low in­fla­tion."

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.