Rich nations' central banks should slowly hike rates: Rajan

05 September 2015

Reserve Bank of India governor Raghuram Rajan on Friday stressed that investors should not be scared of transient volatility in markets, and that the problems facing the global economy include low productivity and low investments with people saving more and spending less.

"We should not be scared of (markets) volatility," Rajan said Turkey's capital Ankara, addressing a meeting of business leaders from G20 countries called the B20 meet, a statement said.

Under pressure back home to cut rates, Rajan seemed to moot the reverse, saying global economies witnessing sustainable growth need to hike rates, although not in a "one go, big bang" manner and that market volatility concerns should not come in the way of central bank decisions.

While Rajan did not name the US or the Federal Reserve, his comments before the grouping of global central bankers and international business community come against the backdrop of the widespread speculation about an imminent rate hike by the US Federal Reserve.

The RBI head said finance "is only a lubricant to growth" and it would be the overall economic policies of the countries that would determine their basic growth momentum, adding that the current problems for the global economy include people saving more and spending less, low productivity and low investments.

Rajan also warned that central banks worldwide might have engendered excessive fragility in the system.

When Rajan took charge at RBI in 2013 at a time the US Federal Reserve had declared its intent to wind down its stimulus programme, the rupee plunged in value in respect of the US dollar on fears about a spiralling current account deficit. In a series of measures, Rajan managed to stabilize the currency that also brought back investors.

"Rajan's disciplined and focussed approach in leading the Reserve Bank during his first year as governor was remarkably impressive," British magazine Central Banking said earlier this year giving Rajan their central banker of the year award for 2015.

He had predicted the 2008 markets crash caused by the housing market crisis in the US that put its economy into deep recession setting off a global slowdown. In 2011, he published the acclaimed "Fault Lines" on how hidden financial fractures threaten the world economy.

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