Attributing Global Market Problems to China Would Be Wrong, Says India’s Reserve Bank Governor Rajan

In an interview for “India Business Report” on BBC World News on Aug. 25, India’s Reserve Bank Governor Raghuram Rajan said, “Every adverse development in the global economy works through financial markets first, then trade later…. But you have to be careful about attributing everything to China. There are a number of concerns about when interest rates will normalize around the world, and there are also questions about whether some markets are just too high,” he told BBC.

Rajan, who is under pressure from the Modi government to lower interest rates in order to help the Indian economy to develop faster, said, “The real stimulus for economic revival should come from the governments through growth-oriented reform processes, and not through monetary policy stimulus…. I have been a little concerned about the immense burden for action that is falling on Central Banks, and I think it is quite legitimate for Central Banks to say at some point, ‘we can’t carry the burden ourselves; in fact, we may not have the tools to do everything that is asked of us,'” Rajan said.  “Don’t keep asking us [central banks] to do more, because at some point, we get into territory where the consequences may be more bad than good, if we actually act,” he added.

“In my country, I’m faced with traditional central bank problems like inflation, so we still have a handle to work with those. But in some other countries, you are faced with problems which are maybe way beyond what the central bank is capable of addressing —  such as demographic change, deep changes in productivity — and those are probably best dealt with other tools,” Rajan said.