RBI Governor Rajan warns of Great Depression problems, calls for consensus

RBI Governor Rajan warns of Great Depression problems, calls for consensusGovernor of Reserve Bank of India (RBI) Raghuram Rajan called on to built an international consensus as he warned that the global economy may be slipping into problems similar to the Great Depression of the 1930s.

While addressing a conference at London Business School (LBS), Rajan said that it was time that central banks from across the world defined 'new rules of the game' in order to effect a better solution.

"I am not going to venture a guess as to how we establish new rules of the game. It has to be international discussion, international consensus built over time after much research and action," Rajan said, while addressing the conference on 'The Central Banker Perspective'.

"But I do worry that we are slowly slipping into the kind of problems that we had in the thirties in attempts to activate growth. And, I think it's a problem for the world. It's not just a problem for the industrial countries or emerging markets, now it's a broader game," added the Governor.

However, Rajan said the situation was different in India where RBI still needed to bring down lending rates to spur investments.


When questioned about interest rate cuts from an Indian perspective, Rajan said that he tries to shut out market reactions.

"So I shut out the asset price (hike) reaction and think more about, is this going to bring bank lending rates down and therefore channel cheaper credit into firms and then they will invest. However, the issue gets much more complicated for other markets," said the RBI Governor.

He also laid emphasis on the enormous pressure for growth which leads to pressure on central banks to take action.

Rajan highlighted that seven years on from the economic crisis, the central banks have done a lot during as well as post-crisis.

"The question is are we now moving into the territory in trying to produce growth out of nowhere we are in fact shifting growth from each other, rather than creating growth. Of course, there is past history of this during the Great Depression when we got into competitive devaluation," he warned.

(Image: Indiatimes)