New Delhi: RBI Governor Raghuram Rajan today said it is not right to always claim a ‘bazooka’ left up the sleeves of central banks, even as he asserted that life is “very difficult” in emerging markets.
He also took on the industrial nations for expecting the emerging markets to be “orthodox” in their monetary and economic policies at a time when they themselves have “thrown out the orthodoxy out of the window”.
He was participating in a panel discussion in Basel on lessons learnt by the central bankers from the global financial crisis.
He was speaking at a panel discussion after the Per Jacobsson Foundation Lecture, delivered by JP Morgan Chase International Chairman Jacob Frenkel, on the occasion of the Bank for International Settlements (BIS) Annual General Meeting in Basel.
The lecture took place on June 26, but its content has been made public now only. Those participating in the panel discussion included Bank of Mexico Governor Agustun Carstens and Bank of France Governor Francois Villeroy de Galhau.
The lecture took place within days of Rajan making public his decision that he would not opt for a second term as RBI Governor when his current three-year tenure ends on September 4.
Rajan, a former Chief Economist at IMF who is credited for predicting the global financial crisis, was here to attend the BIS Annual Meeting, as also a bi-monthly meeting of select central bankers from across the world here at BIS Tower.
Referring to Frenkel’s lecture that talked about unconventional monetary policies and the central bankers not being the only game in the town, Rajan said the question at the heart of his talk appeared ‘why is the populism popular’.
“In a way, he was making a desperate plea for orthodoxy and saying let’s not abandon orthodox principles and I guess the converse of that is that populism has become popular.
“I think if you want to talk about the institutional and environmental situation which supported the orthodoxy, the 80s and 90s, one would guess that it was a society where the elites were respected, where there was a feeling that they could understand and interpret the policies for the masses.
“There was broadly a positive sum game… And actions were not interpreted as favouring one constituency versus another. There was a sense of coherence in the society, little more than today,” he said.
Rajan further said that when there is trust in the elite and there is no common economic paradigm, a lot of competing paradigms come up, some of which contradict the laws of economics and very little trust is left in the institutions.
(With PTI inputs)
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