The International Monetary Fund (IMF) should play an active role in questioning the easy monetary policies, or so called quantitative easing measures, adopted by the developed economies rather than sitting on the sidelines, Reserve Bank of India Governor Raghuram Rajan said.
“The IMF has been sitting on the sidelines and applauding these kinds of policies right from when they have been initiated, and hasn’t really questioned the value of these kinds of policies,” he told a G20 consultation meeting in Mumbai.
Dr. Rajan said developed countries were adopting monetary policies without consideration for the negative impact they have on the global economy, while emerging markets were engaging in currency intervention that sparked competitive devaluations. He did not single out any one country.
Dr. Rajan, a former chief economist at the IMF, said that it was time for policymakers, led by the IMF, to address the “extreme” policies, otherwise “we have to worry where this ends”.
His comments come at a time when the U.S. Federal Reserve has kept everyone guessing on when it will begin increasing interest rates, signalling a departure from the quantitative easing adopted in the wake of the 2008 financial crisis Dr. Rajan also called for more coordination between leading central banks and said there is a need for more optimal use of monetary policy tools globally as the world is increasingly staring at deflation.
The RBI governor also stressed on the need for emerging markets to develop more capable economists, who can help drive discussions among policymakers globally. “We must, across the emerging world, realise that some of the reasons why global governance seems to be against us is we are not putting enough resources into this,” he said.
“Yes, we go to our think tanks, etc. But we don’t have people working in government who have that kind of training, that kind of capacity,” he added.
India should address supply side constraints Dr. Rajan also said India needs to address supply side constraints in order to achieve the potential growth rate of 9 per cent.
To a question on whether India can attain higher growth without inflation, he added: “The answer is no. We have to create underlying supply conditions that would allow us to sort of have much higher demand. In some sense, I see 9 per cent growth as a situation where we are investing tremendous amount and thus creating the supply which will then help the demand.”
“It is a steady process rather than an overnight process. It will take some time.
