Reserve Bank of India Governor Raghuram Rajan on Saturday addressed the India-IMF Conference in Delhi.
Here are the highlights:
Here are the highlights:
- Back to my old complaints about uncertain effects of unconventional monetary policy
- Problem is given industrial countries' domestic inflation mandate, central bankers have no option
- Monetary policies have spillover effects
- Demand-creating effects of lower interest rates in domestic consumption and investment typically in ordinary times tends to be substantial while demand-switching effects of the lower exchange rate in enhancing external demand for your goods is smaller than the demand creating effects; on net, spillover effect for rest of the world is generally positive
- Central bank's domestic responsibility is clear
- Aggressive policies do two things: One it may keep interest rates so slow that financial instability will build up
- Second, the first mover out of the situation gets the brunt of the hit in terms of exchange rate appreciate and it keeps policymakers trapped in this low interest rate-aggressive monetary policy equilibrium
- Just calling a policy monetary does not mean it is beneficial to the world
- What matters is how a monetary policy is undertaken, what period it is undertaken
- Even ordinary monetary policy carried on for long time can move into red region
- If a country reduces its interest rate domestically its exchange rate also typically depreciates which helps exports
- No monetary policy that affects international monetary system should be off the table
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