China woes don't point to urgent risk of global crisis: Rajan

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SME Times News Bureau | 27 Aug, 2015
Acknowledging China's status as a major cog in the global economy, Reserve Bank of India Governor Raghuram Rajan on Wednesday, however, allayed fears that its recent problems meant that another global crisis was around the corner.

"Based on what I have seen so far there is no strong reason to believe that we are on the verge of another crisis... but we have to be vigilant about kinds of those fragilities that have built up in the last few years," Rajan said in an interview to the BBC.

Describing China as having "become very important to the global economy", he, however, said it was incorrect to attribute the problems for global markets entirely to China, as there were a number of other concerns too.

Predicting the 2008 financial meltdown that is still affecting global economy, Rajan, in 2005, had argued that increasingly complex markets with myriad instruments of credit and mortgage-backed securities in ever greater quantities had made the global financial system a risky place.

Almost a decade down the line, he is stronger in his belief that global markets now are at the risk of a crash due to the competitive loose monetary policies being adopted by developed economies.

Rajan also said that the problems of the economy should be solved through reforms and warned against the trend of over-intervention by central banks to fix struggling economies.

"I have been a little concerned about the immense burden for action that is falling on central banks. 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," he said.

"Don't keep asking us 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.

"Central banks have tried, they have tried very hard... negative interest rates, low for long, quantitative easing..we have done a whole bunch of things like that," said the Indian central bank governor.

"The question is, at what point do you, through additional measures, do more harm than good?" he asked.