Macro Economy

Rajan did not imply world facing new Great Depression, says RBI

Our Bureau Mumbai | Updated on January 24, 2018 Published on June 28, 2015


The policies followed by major central banks around the world were in danger of slipping into the kind of ‘beggar-thy-neighbour’ strategies that were followed in the 1930s, the Reserve Bank of India said on Sunday, clarifying remarks made by the Governor late last week at the London Business School.

Beggar-thy-neighbour here means that a country’s attempts to set right its economic problems tend to worsen the economic problems of other countries.

Speech at London B-school

The RBI said a section of the press had mischaracterised Governor Raghuram Rajan’s remarks at a conference at the London Business School on June 25, as saying “the world is at risk of a Great Depression”.

In his speech in London, Rajan said: “We are being pushed towards competitive monetary easing and musical crises. I use Depression era terminology because I fear that in a world with weak aggregate demand, we may be engaged in a risky competition for a greater share of it. We are thereby also creating financial sector risks for when unconventional policies end.”

In its clarification, the RBI said that the Great Depression (in the 1930s, when there was a severe worldwide economic depression) was a period of great turmoil, caused by many factors and not just beggar-thy-neighbour policies.

Nothing implied

The central bank said Governor Rajan did not imply or suggest that there was any risk of the world economy, which is in a steady recovery notwithstanding uncertainties like those in the Euro area, slipping into a new Great Depression.

He then called for new rules of the game in the international monetary system, a call that he has made before, and that is gaining some traction.

Published on June 28, 2015
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