Acharya warns against systemic risk building on low rates, high liquidity

Acharya warned that both conditions are prevalent in India. Given India's macro constraints, where the government is spending more relative to the Indian households' savings

Former Reserve Bank of India (RBI) deputy governor Viral Acharya on Wednesday warned against systemic risks building up and stoking inflation, if the corporate sector fed off easy money at cheap rates and the central bank indirectly monetised government deficits.

According to the former deputy governor, the corporate bond market in India gets a boost either when foreign capital flow is robust, or temporary liquidity is created by the central bank’s indirect monetisation of government deficits through secondary market bond purchases. 

“Both are associated with the misfortune that one exposes you to external sector fragility, the second to inflation fragility," the former