Raghuram Rajan warns against low rates worldwide

MUMBAI: Three years before the 2008 global financial crisis, an Indian economist named Raghuram G Rajan+ presciently warned a skeptical audience of top economic thinkers that excessive risk threatened the entire global financial system.

As Rajan stepped down+ on Sunday as India's top central banker, following intense criticism at home, he offered a new warning: Low interest rates globally could distort markets and would be difficult to abandon.

Countries around the world, including the United States and Europe, have kept interest rates low+ as a way to encourage growth. But countries could become "trapped" by fear that when they eventually raised rates, they "would see growth slow down," he said.

Low interest rates should not be a substitute for "other instruments of policy" and "various kinds of reforms" that are needed to encourage growth, Rajan said+ in a recent interview with The New York Times. "Often when monetary policy is really easy, it becomes the residual policy of choice," he said, when deeper reforms are needed.

His warning comes at a time when the world's central banks appear to be at a loss about how to get global growth moving again. A growing number of voices say that low rates are not doing the job and that governments must take other, more politically difficult steps to reinvigorate growth.


Source:-TOI
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Low-Key Urjit Patel Takes Over As RBI Governor With Pressing Matters

times under Dr Rajan due to tensions over banks' reluctance to pass on the RBI's hefty rate cuts and a push to clean up $120 billion (nearly Rs 8lakh crore) in bad loans in the banking system by March 2017.

Mr Patel took over on Sunday, the RBI said. A private handover ceremony from Dr Rajan will take place on Tuesday.

"Mr Patel was part of the team at RBI that set in motion significant policy changes to deal with both high inflation and weak bank balance sheets, including through the set-up of new policy frameworks," said Thomas Rookmaaker, a director of Fitch Ratings' Asia-Pacific Sovereigns Group in an emailed statement.

"(He) seems well-positioned to further institutionalize these policy changes in the period ahead."

Most immediately, Mr Patel is expected to work with the government to appoint the six members of the monetary policy committee, with the next policy review due on October 4.

The central bank and the government will each have three representatives on the committee, with the RBI's being the governor and the two most senior monetary policy officials.

With the government having to announce a replacement for Mr Patel as a deputy governor, that gives New Delhi a role in picking four members of the inaugural committee.

Mr Patel and the panel will be responsible for ensuring inflation stays within a target of 4 percent with a range of two percentage points on either side, effectively creating a target range of 2 to 6 percent.

Dr Rajan had cut the policy repo rate by 150 basis points (bps) since the start of 2015, but has held off on easing further since April as inflation picked up. Consumer prices rose 6.07 percent in July from a year ago.

But economists say Mr Patel could have room to cut rates further if above-average monsoon rains temper food prices.

The economy could use some stimulus given growth slowed to a 15-month low of 7.1 percent in April-June, well below the 8 percent needed to create millions of new jobs.

But analysts see only room for another 25 bps cut sometime between October and December as the RBI is aiming to hit a target of 5 percent inflation by March 2017 as part of a "glide path" towards 4 percent.

Mr Patel will thus need banks to cut lending rates further, a relationship that will likely occupy much of his term.

However, unlike Dr Rajan, Mr Patel is expected to keep a much lower profile. The former RBI governor was seen as having upset some segments of Prime Minister Narendra Modi's government by speaking out in areas outside the direct purview of the central bank.

"Urjit Patel is likely to keep a low profile and refrain from commenting on non-economic issues," said K Vijayakumar, Chief Investment Strategist of Geojit BNP Paribas.


Source:-NDTV
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How your financial fortunes changed during Raghuram Rajan’s tenure as RBI governor

NEW DELHI: Reserve Bank of India Governor Raghuram Rajan's tenure is nearing its end, with less than four weeks to go before he bids adieu to Mint Street.

On Tuesday, he will preside over his final money policy review, where the Governor will set the rate for the last time before the whole system gets substituted by a monetary policy committee.

It's been a fairly smooth ride for the RBI Governor, except for the political storm that he faced in the fina ..
Source:-indiatimes
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