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RBI Governor Raghuram Rajan Explains His 'Global Crash' Warning
- Thread starter vgane
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Central bank Governors have a limited role...They have to walk on thin ice while alternating in focus between growth and run away inflation...While defining the monetary policy is their primary role, most of the bankers are given a larger than life role to cover up the short comings of their political masters
The developed countries (read USA) have reduced the interest rates near Zero to stimulate growth that it is having a spiraling effect on the developing economies including India with asset prices going through the roof since the 2008 crisis
Raghuram Rajan, RBI Governor, who could save his job despite the change of guard at the Center, has voiced his concern on the dangers of over dependence on the monetary policies to manage the economy. There are other things which can be focused (but normally shunned on account of the adverse effects, need to manage dissent) by the law makers such as initiating and managing reforms, controlling expenses, cut on subsidies etc..Most of them prefer the status quo..Who is going to bell the cat before the world is sucked into the vortex of another large scale economic crisis
[h=1]Raghuram Rajan Explains His 'Global Crash' Warning[/h]
NDTV | Updated On: August 12, 2014
Reserve Bank of India Governor Raghuram Rajan on Monday said his warning about a global markets "crash" last week was not aimed to "preempt" another crisis, but to highlight the pitfalls of using monetary policy to revive growth.
"My colleagues in industrial countries are trying too hard (to revive their economies), and I would prefer monetary policy to do less and other parts of the economy, including the political system, to do more. If we try too hard, then we raise the probability of a crisis," said Dr Rajan, who is famous for predicting the 2008 financial meltdown.
Overnight interest rates in the US have been near zero since December 2008, when the Federal Reserve started buying bonds to kick-start the stalled US economy. The Fed's easy money policy has helped drive up prices in risk assets across the globe, particularly in emerging countries like India.
Year-to-date overseas investors have pumped in over $25 billion (around Rs. 1.5 lakh crore at 60 rupee per dollar) into Indian debt and equity markets. The surge of money has sent the Sensex to record highs and supported the rupee.
Rising shares and a stable rupee have masked the fundamental problems of the Indian economy, which has grown at sub-5 per cent for two consecutive years. Dr Rajan has resisted pressure to ease interest rates to boost growth and has stuck to a hardline stance of controlling inflation to 6 per cent by January 2016.
"Instead of the political system taking action, reforming the economy, etc., as industrial countries also need reforms, they are relying on the monetary authorities to provide whatever boost that was required.
"I thought this was dangerous because monetary authorities across the world are boosting asset prices rather than real activity," the RBI chief said.
Dr Rajan warned that India will be at risk if industrial countries start raising rates. Higher interest rates in the US may lead to a reversal of portfolio flows from India, which could adversely impact the rupee, stocks and property prices.
"We will be tested by capital outflows and my hope is that we have done enough in terms of strengthening the macroeconomic fundamentals of the country...as well as in building up reserves," he said.
India's foreign exchange reserves of $320.56 billion in the week to August 1 are close to surpassing a record high of $320.785 billion in September 2011.
Raghuram Rajan Explains His Global Crash Warning - NDTVProfit.com
The developed countries (read USA) have reduced the interest rates near Zero to stimulate growth that it is having a spiraling effect on the developing economies including India with asset prices going through the roof since the 2008 crisis
Raghuram Rajan, RBI Governor, who could save his job despite the change of guard at the Center, has voiced his concern on the dangers of over dependence on the monetary policies to manage the economy. There are other things which can be focused (but normally shunned on account of the adverse effects, need to manage dissent) by the law makers such as initiating and managing reforms, controlling expenses, cut on subsidies etc..Most of them prefer the status quo..Who is going to bell the cat before the world is sucked into the vortex of another large scale economic crisis
[h=1]Raghuram Rajan Explains His 'Global Crash' Warning[/h]
NDTV | Updated On: August 12, 2014
Reserve Bank of India Governor Raghuram Rajan on Monday said his warning about a global markets "crash" last week was not aimed to "preempt" another crisis, but to highlight the pitfalls of using monetary policy to revive growth.
"My colleagues in industrial countries are trying too hard (to revive their economies), and I would prefer monetary policy to do less and other parts of the economy, including the political system, to do more. If we try too hard, then we raise the probability of a crisis," said Dr Rajan, who is famous for predicting the 2008 financial meltdown.
Overnight interest rates in the US have been near zero since December 2008, when the Federal Reserve started buying bonds to kick-start the stalled US economy. The Fed's easy money policy has helped drive up prices in risk assets across the globe, particularly in emerging countries like India.
Year-to-date overseas investors have pumped in over $25 billion (around Rs. 1.5 lakh crore at 60 rupee per dollar) into Indian debt and equity markets. The surge of money has sent the Sensex to record highs and supported the rupee.
Rising shares and a stable rupee have masked the fundamental problems of the Indian economy, which has grown at sub-5 per cent for two consecutive years. Dr Rajan has resisted pressure to ease interest rates to boost growth and has stuck to a hardline stance of controlling inflation to 6 per cent by January 2016.
"Instead of the political system taking action, reforming the economy, etc., as industrial countries also need reforms, they are relying on the monetary authorities to provide whatever boost that was required.
"I thought this was dangerous because monetary authorities across the world are boosting asset prices rather than real activity," the RBI chief said.
Dr Rajan warned that India will be at risk if industrial countries start raising rates. Higher interest rates in the US may lead to a reversal of portfolio flows from India, which could adversely impact the rupee, stocks and property prices.
"We will be tested by capital outflows and my hope is that we have done enough in terms of strengthening the macroeconomic fundamentals of the country...as well as in building up reserves," he said.
India's foreign exchange reserves of $320.56 billion in the week to August 1 are close to surpassing a record high of $320.785 billion in September 2011.
Raghuram Rajan Explains His Global Crash Warning - NDTVProfit.com
A very interesting post. large global powers trying to boost their economy by very low interest rates or artificially
lowering the value of their currency in a competitive way making india sound to be a great place for investment. indian
economy is in bad shape . but share market is booming due to global inflows and rupee has strengthened. it sounds a
bit dicey. see the property prices artificially pegged at very high levels driving it beyond middle class reach. everyone
talks of correction in .prices. global cues with US,china and germany deciding the fate of other currencies
it is foolish to make a living by honest work and getting a salary. it appears speculation and taking advantage of
arbitrage oppurtunities in currency trading or property transactions can be utilised to become a multi millionaire
it is only a thought. why not play around with these ideas . with a decent tambrahm brain , we can make a killing by
speculation alone in various fields
basically I am an engineer . I find it appealing to make easy money. when I have nothing better to do
it is only a thought .I might do it for fun and to find out if I can be a decent speculater .
the stock prices , commodity trading , gold and silver , currency look decent for play in addition to property
how about having a fling ?
it should bring some much needed excitement into living. what doyoou think vganeji?
lowering the value of their currency in a competitive way making india sound to be a great place for investment. indian
economy is in bad shape . but share market is booming due to global inflows and rupee has strengthened. it sounds a
bit dicey. see the property prices artificially pegged at very high levels driving it beyond middle class reach. everyone
talks of correction in .prices. global cues with US,china and germany deciding the fate of other currencies
it is foolish to make a living by honest work and getting a salary. it appears speculation and taking advantage of
arbitrage oppurtunities in currency trading or property transactions can be utilised to become a multi millionaire
it is only a thought. why not play around with these ideas . with a decent tambrahm brain , we can make a killing by
speculation alone in various fields
basically I am an engineer . I find it appealing to make easy money. when I have nothing better to do
it is only a thought .I might do it for fun and to find out if I can be a decent speculater .
the stock prices , commodity trading , gold and silver , currency look decent for play in addition to property
how about having a fling ?
it should bring some much needed excitement into living. what doyoou think vganeji?
Financial fling? Economic one-night stand? Loose money, loose morals?
Krishji,
Make hay while the sun shines is very much relevant for making money..Nothing wrong in that
We have to be careful..I once invested in Group B & C companies during the boom days and lost heavily
Vaagmi
0
25 bn USD or 1.5 lakh crores of INR looks like a large amount of hot money that has flown into the country's financial markets. But take a look at this info:
1. On Tuesday (12 Aug 2014) in a written reply to Rajya Sabha, defence minister Arun Jaitley said India spent Rs. 83,458 Crores on importing weapons over the last three years. The US stood first in the list with Rs. 32,615 crores followed by Russia (Rs. 25,364 Crores)France (Rs. 12,047 Crores) and Israel (Rs.3,389 Crores) to make the arithmatic complete, the import from "Others" was 10,043 Crores.
2. The hot money to flee the country in some eventuality will require a certain enabling circumstances like high rate of interest elsewhere-say US, a window of opportunity to convert the rupees investments into USD at a profitable exchange rate(this comes once in a while when huge imports suck up USD in the market like oil import or weapons import etc) and the magnet's(attracting the reverse flow of Dollars) capacity to absorb in productive avenues the huge inflow etc.,
3. Whether it is Fed Reserve or RBI everyone in the game know that the ability of these central banks to really to control and guide growth or contain and manage inflation is limited. While they have the freedom to play with the macro parameters like money supply, taxes, expenditure and inflow of capital these are not adequate because a larger role is actually assigned to politicians and the Government run by them. A foreign policy which brings a war looming large in the borders can suddenly suck away a large chunk of the reserves spent in buying weapons. An industrial policy which discourages enterprise and encourages inefficiency including corruption, a tax policy which abets tax evasion and tries to close the stables after the horses have bolted by taxing retrospectively etc., are more dangerous and take away all the effects of a real gdp growth and bring it to negative.
4. The periodic release and sucking back of the money from the markets by using repo rate, base Interest rate, CRR rates and SLR rates can have only peripheral effect on the money supply. The supply side is not the only side of the economy.
5. We have done absolutely nothing about power shortage, logistics, mindless wastage of food grains, corruption and raw materials.
Just some food for thought.
1. On Tuesday (12 Aug 2014) in a written reply to Rajya Sabha, defence minister Arun Jaitley said India spent Rs. 83,458 Crores on importing weapons over the last three years. The US stood first in the list with Rs. 32,615 crores followed by Russia (Rs. 25,364 Crores)France (Rs. 12,047 Crores) and Israel (Rs.3,389 Crores) to make the arithmatic complete, the import from "Others" was 10,043 Crores.
2. The hot money to flee the country in some eventuality will require a certain enabling circumstances like high rate of interest elsewhere-say US, a window of opportunity to convert the rupees investments into USD at a profitable exchange rate(this comes once in a while when huge imports suck up USD in the market like oil import or weapons import etc) and the magnet's(attracting the reverse flow of Dollars) capacity to absorb in productive avenues the huge inflow etc.,
3. Whether it is Fed Reserve or RBI everyone in the game know that the ability of these central banks to really to control and guide growth or contain and manage inflation is limited. While they have the freedom to play with the macro parameters like money supply, taxes, expenditure and inflow of capital these are not adequate because a larger role is actually assigned to politicians and the Government run by them. A foreign policy which brings a war looming large in the borders can suddenly suck away a large chunk of the reserves spent in buying weapons. An industrial policy which discourages enterprise and encourages inefficiency including corruption, a tax policy which abets tax evasion and tries to close the stables after the horses have bolted by taxing retrospectively etc., are more dangerous and take away all the effects of a real gdp growth and bring it to negative.
4. The periodic release and sucking back of the money from the markets by using repo rate, base Interest rate, CRR rates and SLR rates can have only peripheral effect on the money supply. The supply side is not the only side of the economy.
5. We have done absolutely nothing about power shortage, logistics, mindless wastage of food grains, corruption and raw materials.
Just some food for thought.
Absolutely true Vaagmi...The political class would like the tough decisions to be taken by RBI while they themselves give a low priority and focus on what they can easily improve or bring it under control-simplifying tax regime, ending red tapism and delays by the bureaucracy, working to get more revenue, reducing unnecessary subsidies etc..They do not like to take ownership for the actions; instead they would like to pass the buck.
Thanks Biswa..Which post of Prasadji..
tks
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I think he meant Sri Vaagmi who shared his knowledge and wrote an interesting post in this topic
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