Central banks should liaise better during crisis: Raghuram Rajan

Says many emerging markets have already been taking steps to help their neighbours

Calling on central banks in emerging market economies to coordinate better in times of crisis, Reserve Bank Governor Raghuram Rajan on Tuesday said India also has had its liquidity lines open for some of its neighbours.

Without naming any neighouring country, Rajan said many emerging markets have already been taking steps to help their neighbours. Delivering a lecture at the London School of Economics, the RBI Governor said “people need to work with each other and we need to figure out how to make this more part of the global structure” in the absence of any global level structure in this regard.

Rajan also appeared questioning the monetary policy actions of central bankers in developed world to boost demand while hinting that such moves might be harming the global economy and could be having little impact on domestic demand. “We are reaching the limits of what monetary policy can do,” Rajan said.

“We are still broadly in a situation where we think the problems are largely temporary and sufficient stimulus will get the global economy back on track,” he said.

Questioning the benefits of the so-called ‘helicopter money’ policy, Rajan said people might think that the economy outlook was bad if central banks start giving away easy money and they might prefer saving rather than spending.

“In these troubled times, you run the risk of creating exactly the opposite expectation of the one you intend,” he said, but observed that the central bank might actually “throw up their hands and say, I can’t do anything more”.

“... You never hear a central bank saying it has run out of options,” he said.