Union Minister Jayant Sinha today came in support of RBI Governor Raghuram Rajan’s call for a system to assess impact of unconventional monetary policies of some industrialised nations and said narrower policies by some nations can have spillover effects.
International Monetary Fund (IMF) chief Christine Lagarde, however, favoured continuing of unconventional monetary policy in countries where inflation is very low.
Minister of State for Finance Sinha said it was important that nations across the region pursue policies that are much more coordinated than they are right now.
“We have to be very watchful of spillover effects as countries are pursuing in some cases somewhat more narrower domestic policies which of course have spillover effects across region across the world that do require significant coordination,” he told reporters here.
He called for “very careful thinking” on more coordinated fiscal expansion.
Reserve Bank Governor Raghuram Rajan had yesterday called for a system for assessing the wider impact of monetary policies of global central banks, including unconventional tools and their spillover effect, and colour codes for rating them.
Rajan has been critical of moves by central banks to lower interest rates to meet domestic demands, ignoring the impact it would have on the global economy.
Yesterday he stated that unconventional monetary policy used by industrialised nations has impact globally and there was a need to discuss the issue and analyse its spillover effects.
Lagarde said the position of the IMF on unconventional monetary policy has been that they “should be continued in those countries where inflation is very low and where monetary policy is accompanied by other measures taken by policy makers in fiscal and structural reforms.”
“We have stated very clearly that monetary policy is needed but cannot be the only game in town and cannot be over burdened with the over all policy needs that countries have,” she said.
Stating that Rajan always has interesting proposals, she said unconventional monetary policy “is fine provided that inflation is low, fiscal measures are taken, structural reforms are adopted”.
Lagarde and Sinha were jointly addressing a press conference at the conclusion of the three-day Advancing Asia Conference, co-hosted by India and IMF here.
Rajan’s suggestion yesterday at the same conference came days after the European Central Bank cut all its main interest rate, expanded asset purchases and launched a loan programme to pay banks to lend to firms and households. Bank of Japan too has taken interest rates into negative territory.