Rajan warns of Great Depression-like problems in world economy

Global economy is "slowly slipping" into Great Depression-like problems of 1930s, RBI Governor Raghuram Rajan has warned, asking central banks from across the world to define "rules of the game" to find a solution.
Rajan, who is among the few to have predicted the 2008 financial crisis, said the problem was a "broader" one and for the entire world -- not just for industrial countries or emerging markets.
The former IMF Chief Economist, who has earlier warned against competitive monetary policy easing by central banks globally, said the situation is different in India on this front and RBI remains more focussed on bringing down the lending rates to spur investments.

"We need rules of the game in order to effect a better solution. I think it is time to start debating what should the global rules of the game be on what is allowed in terms of central bank action," he said at a London Business School (LBS) conference here last evening.
"I am not going to venture a guess as to how we establish new rules of the game. It has to be international discussion, international consensus built over time after much research and action," the Reserve Bank of India Governor said.
"But I do worry that we are slowly slipping into the kind of problems that we had in the thirties in attempts to activate growth. And, I think it's a problem for the world. It's not just a problem for the industrial countries or emerging markets, now it's a broader game," he observed.

The Great Depression refers to a period of severe global economic downturn in the 1930s, which had affected almost all countries across the world. It started in 1929 and continued till late 1930s and still remains the longest and most widespread period of the global economic depression.
Asked specifically about interest rate cuts from an Indian perspective, Rajan said: "I try to shut out market reactions as far as I can. We (India) are still in a situation where we have to spur investment and I am worried more about that.
"So I shut out the asset price reaction and think more about -- is this going to bring bank lending rates down and therefore channel cheaper credit into firms and then they will invest. However, the issue gets much more complicated for other markets.