Rajan in ‘Basel huddle’ of central banks as Brexit roils markets

RBI Governor Raghuram Rajan and heads of central banks from across the world got into a huddle today in this Swiss town as Britain’s vote to exit the European Union gave an early morning shock to the financial markets globally.

Rajan, who has been pitching for greater coordination among central banks to deal with such situations, was expected to reiterate this point amid fears that Europe may slip into recession and many more countries may call for similar referendums posing a huge risk to recovery in the world economy.

The heads of central banks from various countries get into a ’Basel huddle’ every second month here at the headquarters of the Bank for International Settlement (BIS), popularly known as bank for central banks.

The contours of this bi-monthly meeting are never made public and the discussions held there are kept top-secret, though they concern the monetary policy actions the central banks across the world need to take in the wake of emerging and foreseeable trends in the global economy.

However, today’s meeting happens on a crucial day when the Britain referendum results showed the UK public has voted against remaining in EU.

Being away in Basel for this meeting, Rajan issued a written statement to allay concerns about impact of Brexit on Indian financial markets while reiterating RBI’s promise to provide necessary liquidity support to ensure orderly movements.

Besides, he also did a rare phone-in with some business news channels to reassure investors about India’s preparedness to deal with the eventuality and said the rupee’s fall has been relatively moderate compared to many other currencies globally.

Rajan said RBI is continuously maintaining a close vigil on the market developments, both domestically and internationally, and will take all necessary steps. He also said he was in touch with other central banks globally.

The RBI Governor, who announced last week that he would return to academia after the end of his current three-year tenure on September 4, has for long been pitching for greater monetary policy coordination among central banks globally.

Rajan, known for his outspoken views on domestic and international economic issues, in March called for a system for assessing the wider impact of monetary policies of global central banks, including unconventional tools and their spill-over effect, and colour codes for rating them.

Asserting that unconventional monetary policy used by industrialised nations has impact globally, he said there was a need to discuss the issue and analyse its spill-over effect.

He also suggested a traffic light system grading policies green, orange or red and said a group of eminent academics with reasonable representation across the globe should be set up to analyse and grade various policies.

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