RBI Governor Criticises ‘Breakdown’ of Global Cooperation

Reserve Bank of India (RBI) governor, Raghuram Rajan, criticised the lack of global economic policy coordination in a week that has seen India, Turkey and South Africa raise interest rates while the US Federal Reserve confirmed a further stage in its so-called ‘tapering’ policy of reducing monthly bond purchases.

“International monetary cooperation has broken down,” Rajan said in Mumbai, when interviewed by Bloomberg TV India. He added that emerging markets (EMs) were prominent in helping the global economy recover from the global crisis of 2008-09.

“Emerging markets tried to support global growth by huge fiscal and monetary stimulus,” he added, and if industrialised nations insisted on developing countries going it alone, then they “may not like the kinds of adjustments we will be forced to do down the line”.

“Industrial countries have to play a part in restoring that, and they can’t at this point wash their hands off and say we’ll do what we need to and you do the adjustment,” said Rajan.

“Fortunately the International Monetary Fund [IMF] has stopped giving this as its mantra, but you hear from the industrial countries: We’ll do what we have to do, the markets will adjust and you can decide what you want to do,” he added. “We need better cooperation and unfortunately that’s not been forthcoming so far.”

Rajan’s comments follow the US Federal Reserve’s confirmation on 29 January that it will reduce monthly bond purchases by US$10bn to US$65bn, in response to improving US jobs market indicators and accelerating economic growth. However, the Fed’s latest move left EMs to ‘twist in the wind’, said Steven Englander, the head of currency trading for major industrialised nations at Citigroup.

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