The Hindu Business Line : ‘Caution needed on opening up money markets’

Mumbai, Dec. 4 Premature liberalisation of money and bond markets can lead to large and volatile capital inflows, intensifying complications for macroeconomic and monetary management, said Dr Rakesh Mohan, Deputy Governor, Reserve Bank of India.

“Deregulation, liberalisation, emergence of financial conglomerates and globalisation of financial markets pose growing risks to financial stability,” he said.

The volatility in currency and bond markets can have adverse consequences on employment, output and distributional aspects as compared to volatility in equity markets.

Dr Mohan was speaking on ‘India’s financial sector reforms: Fostering growth while containing risk’ at the Yale University.

Talking about the situation in developed markets, Dr Mohan said excessive fluctuations and volatility in financial markets can mask the underlying value and give confusing signals, as has been witnessed in some developed markets.

He maintained that the Reserve Bank of India’s policy approach in this regard would be to be increasingly vigilant and proactive to any incipient signs of volatility in financial markets.

There is a need to develop various segments of the domestic financial market to help in better risk management by various market participants. Dr Mohan said that there was a need to develop innovative channels for credit delivery for serving the new credit needs, with greater use of information technology and intensified skills development in human capital.