Rajam slams IMF for promoting easy money policies

19 Oct 2015


Reserve Bank of India governor Raghuram Rajan today strongly criticised the International Monetary Fund (IMF) for applauding from the sidelines the accommodative policies of developed nations, which he said have created ripples in the emerging markets.

He said central banks across the world are worried about deflation and want to promote growth to avert it at any cost.

"The IMF is supposed to look at these in a global sense, but it has been sitting on the sidelines applauding these kinds of policies ever since they were initiated and hasn't really questioned the value of these kinds of policies," said Rajan, who is a former chief economist of the IMF.

The IMF does spillover studies which invariably say that these policies are good for a country and therefore good for the world, he said at an event in Mumbai.

"I think we need to examine these issues," he added.

The RBI governor said, "Unfortunately if we look at central banking mandates across the world, no central bank has a mandate for the world. Its mandate is purely domestic ... what are you going to do to elevate employment and growth. It has to worry about the world only at second level ... If I do something which creates problems for another country and as a result demand from that country falls off from my country's, I should take that into account. I don't care if I destroy the other country completely, so long as it doesn't import from me."

Without pointing fingers on any particular country, Rajan said these kind of domestic mandates of central banks are there in every country.

"We haven't got mandates for the world. And I want to argue that we are in a world that nothing prevents these kinds of policies. There is nobody looking at them," he said.

Talking about deflation, Rajan said there is a very strong fear, especially in the United States given its historical experience in the 1930s, that if deflation takes hold then we will have a Japan-like experience and will have to write off 15-20 years of growth.

"There is a very strong fear amongst the central banking community across the world that deflation has to be averted at any cost, and that is another reason to try and promote growth because when you have reasonable growth, you can avoid deflation," he added.

(Also see: RBI's Rajan slams IMF for backing manipulative monetary policies)

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