‘DIDN’T IMPLY GREAT DEPRESSION’
RBI CLARIFIES ON RAJAN’S REMARKS
NEW DELHI: The Reserve Bank of India (RBI) on Sunday clarified that governor Raghuram Rajan’s comments about a probable global economic slide was “mischaracterised”, and he did not imply that the world was at an imminent risk of slipping into a 1930s-like Great Depression.
“What Governor Rajan did say in his remarks (at the AQR conference at London Business School on June 25), 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,” an RBI statement said.
“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 said.
The Great Depression (1929-39) originated in the US, triggered by a stock market crash on back of weak consumer spending and high unemployment.
A beggar-thy-neighbor policy — increase exports by devaluing the currency and reduce reliance on imports — adopted in the US in the early years of the Great Depression failed to have an impact. It caused other countries to follow, resulting in a massive fall in international trade.
Meanwhile, an IMF Working Paper has said that monetary policy easing alone cannot be blamed for the financial instability.