Concerned over the prevailing low interest rates in the global markets, the RBI Governor Raghuram Rajan has warned that abrupt reversal of low interest rates globally could create substantial amounts of damage and thus it should be tackle in predictable and careful way. Rajan was also worried that changing price of capital due to the easy flow of money in global markets for substantial period of time distorts investment decision and the nature of the economies.
Raghuram Rajan further added that countries are trying to keep the real rate of interest below appropriate natural rates creating bad investments, which is not appropriate for the economy. Criticizing the function of central banks of some developed nations, the governor said that monetary policy can benefit the economy for certain limit and beyond that it does more damage than good. By adding further, he said that over the past few years, central bankers have convinced markets through taking inappropriate monetary measures and kept interest rates low for long time that has pushed asset prices beyond fundamentals and made markets much more vulnerable to adverse news.
About the lack of coordination in the global financial system, RBI’s Governor has asserted that the US should give importance to emerging economies, which will drive the global economic growth. It has become imperative for global nations to dialogue on how monetary policies are shaped for the favor of global economy.