Rajan predicted 2008 crisis, but we didn’t listen, rues IMF chief

Our Bureau Mumbai | Updated on March 18, 2015

IMF chief Christine Lagarde and RBI Governor Raghuram Rajan during a conversation at the RBI headquarters in Mumbai on Tuesday.   -  PTI

New method Lagarde has welcomed Rajan’s move to introduce flexible inflation targeting as the new regime for monetary policy PAUL NORONHA

We do now, says Lagarde at RBI HQ

IMF chief Christine Lagarde has said that not listening to Raghuram Rajan’s predictions about the 2008 credit crisis was a big mistake.

Rajan, now Reserve Bank of India Governor, was Chief Economist and Research Director at the IMF during 2003-06.

He is credited with correctly forecasting in 2005 an impending global financial crisis at the annual meeting of prominent economists and bankers at Jackson Hole, US.

“The period when nobody was really forecasting the prices that he did... that was one of his many-many accomplishments…” One of the many drawbacks of the Fund was that we did not listen to him at that time, said Lagarde in her address to bankers and economists at the RBI headquarters.

Rajan’s predictions, which proved prophetic, were not taken seriously in 2005. The worst financial collapse since the Great Depression of the 1930s hit the world economy by September 2008.

Jackson Hole

The Jackson Hole prediction came when the US investor community was revelling in the high growth and stable financial conditions then prevailed around the world. “But, we do now pay attention to anything that ‘Raghu’ says,” Lagarde said.

She welcomed Rajan’s recent step to introduce flexible inflation targeting as the new regime for monetary policy.

Lagarde added that India’s monetary policy “rests in good hands” and Rajan was taking encouraging steps, including allowing a greater role for private sector banks.

Published on March 18, 2015

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