RBI Governor Raghuram Rajan on Monday criticised the International Monetary Fund for staying on the sidelines and applauding the easy monetary policies being adopted by developed economies.
Rajan, who has been a Chief Economist of the IMF, said developed countries were adopting monetary policies without considering the negative impact they have on the global economy.
“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 said at an event organised by a think tank ahead of the G20 summit in Turkey next month.
Rajan noted that emerging market economies were engaging in currency intervention that sparked competitive devaluation and it was time for policymakers, led by the IMF, to address these “extreme” policies. Otherwise, Rajan said, “We have to worry where this ends.”
Some central banks adopted so-called quantitative easing policies to counter the global financial crisis. After cutting rates to zero, they pumped cash into their economies to revive economic activity. The US is now considering raising interest rates for the first time since 2006. Rajan said, “What we have to worry about is that extreme monetary policies including exchange rate intervention as well as unconventional monetary policies have the primary effect of altering your exchange rate and pushing capital.”
The RBI Governor, who is seen as a contender to head the IMF once Christine Lagarde’s term ends in 2016, called for more coordination between leading central banks, saying there is a need for more optimal use of the monetary policy tools globally as the world is increasingly staring at deflation.
‘Make in India’ plan On Prime Minister Narendra Modi's ‘Make in India’ plan, Rajan said easy and predictable taxation was needed to achieve the goal. “Let's make in India, but for that we need to create the framework, let’s make business easier,” Rajan said, adding that there is a need to ensure that underlying supply-side issues are resolved, so that the demand side is taken care of and prices are at manageable levels.