Reserve Bank of India Governor Raghuram Rajan has been a critic of the US Federal Reserve, notably after it pulled out its bond-buying programme under quantitative easing. Nonetheless, he feels, current Chair Janet Yellen deserves praise for being sympathetic to emerging markets.
“They (US Fed) certainly are paying more attention and talking about paying more attention (to emerging markets), which I think is a very welcome step,” Rajan said in an interview to The Wall Street Journal.
“I think that’s changed quite a bit under Yellen.”
Earlier, when Ben Bernanke was the Fed chair, Rajan was often critical of the policies that drove waves of capital into and out of emerging economies — many of whom were often unable to deal with its impact on factors such as developmental investments and inflation.
The governor is here for the spring meetings of the World Bank the International Monetary Fund (IMF) as part of the Indian delegation led by Finance Minister Arun Jaitley, which also includes Chief Economic Adviser Arvind Subramanian.
The Indian central bank governor also said the the shift in US Fed’s thinking will give other economies breathing room to address their problems — like sinking commodity prices hurting commodity-exporting countries and high US dollar debt loads affecting companies in some emerging markets.
“Are other countries capable of using the time well, or are the problems beyond their actions?” Rajan, who was the chief economist at the IMF from 2003 to 2007, queried during the interview.
But citing India’s example, he said, both the current account deficit, as also the fiscal deficit, had been narrowed giving the economy more flexibility to manage the turbulence.
As regards to more rate cuts, he said, much depended on inflation and monsoon rains.
“We’re looking at inflation. If it continues on a downward path, that would create room. We’re looking for signs of a good monsoon. Unfortunately, India is still somewhat sensitive to monsoons, though people find it hard to see a link between monsoons and food prices,” he concluded.