With Raghuram Rajan’s recent comments that referred to the Great Depression of the 1930s having created a flutter, the RBI on Sunday said the governor did not imply there being an imminent risk of the world economy slipping into a new Great Depression as that (30s) period of great turmoil was caused by “many factors”.
The RBI, however, added Rajan indeed said that “the policies followed by major central banks around the world were in danger of slipping into the kind of beggar-thy-neighbour strategies that were followed in the 1930s”.
However, agency reports from Washington quoted an IMF working paper to have “countered” Rajan’s view.
According to the paper, the monetary policy easing alone cannot be blamed for the financial instability and the bigger cause for the global recession in the past has been the “absence of an effective framework aimed at preserving financial stability.”
The RBI said in a statement: “The Great Depression was a period of great turmoil, caused by many factors and not just beggar-thy-neighbour policies. Governor Rajan did not imply or suggest that there was any risk of the world economy, which is in steady recovery notwithstanding uncertainties like those in the Euro area, slipping into a new Great Depression.”
Delivering a lecture at London Business School on Thursday, Rajan had asked central banks from across the world to revisit the “rules of the game” in the international monetary system. “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 much action,” the RBI governor had said.
“… 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… I think it’s a problem for the world. It’s not just a problem for the industrial countries or emerging markets, it is a problem for all of us… Now, it is a broader game,” he had said.
Clarifying these remarks, the RBI on Sunday said in a statement that a section has “mis-characterised” Rajan’s remarks as saying — the world is at risk of a Great Depression.
The RBI further said, “What governor Rajan did say… was that the policies followed by major central banks around the world were in danger of slipping into the kind of beggar-thy-neighbour strategies that were followed in the 1930s.
“He then called for new rules of the game in the international monetary system, a call that he has made before, and is gaining some traction.
(with PTI inputs)