Rich nations must think about emerging nations while framing policy: Rajan

Asserting that India is well placed to weather financial crisis, RBI Governor Raghuram Rajan on Sunday said the central banks of developed nations must also keep in mind emerging nations while framing monetary policies.

“I don’t think we can proceed forward saying everybody is in their own boat and they sink or swim alone,” he said in reference to the need for advanced nations, like the U.S., to take heed of countries vulnerable to the stimulus withdrawal.

In his interview to ‘The Australian Financial Review’, Mr. Rajan said while India was well placed to weather the upheaval, advanced nations must recognise the impact of their monetary policy decisions on other economies and “be prepared to act if things get out of kilter”.

At the conclusion of their two-day meet, G20 said their finance ministers and central bank governors recognised that monetary policy needs to remain accommodative in many advanced economies and should normalise in due course.

India and other emerging economies have been asking the U.S., which has started gradual withdrawal of its fiscal stimulus, to be more predictable in monetary policy. The U.S. Federal tapering has caused flight of capital out of emerging economies and in turn hammering their currencies.

The U.S. Federal Reserve has reduced its monthly bond purchases by $ 20 billion to $65 billion on signs of an improving U.S. economy.

The reduction in stimulus, known as tapering, may affect capital flows to emerging markets and impact their currencies.

The Fed first talked about tapering in May 2013, sending markets the world over into turmoil and rupee to a record low.

Union Finance Minister P. Chidambaram said “...when countries withdraw from quantitative easing they should keep in mind the spillovers on the developing countries”.

The G20 communiqué said “All our central banks maintain their commitment that monetary policy settings will continue to be carefully calibrated and clearly communicated, in the context of ongoing exchange of information and being mindful of impacts on the global economy,” the G20 communiqué said.