India's Rajan warns against low rates worldwide

The outgoing central bank chief says low interest rates should not be alternative to reforms needed to boost growth

MUMBAI: India's outgoing central bank chief Raghuram Rajan warned countries against a rush to low interest rates as his tenure as governor of the Reserve Bank of India came to an end.

Rajan, who famously predicted the 2008 global financial crisis, told the New York Times that central banks across the world would find it hard to raise rates again for fear this "would see growth slowdown". The 53-year-old, who clashed with the Indian government over the speed of cuts, said low interest rates should not be an alternative to reforms that may be needed to boost growth, according to the paper.

Interest rates are low across many major economies, including in the United States, Europe, and Japan -- where rates are in negative territory -- but they have yet to stimulate a sluggish global economy. "Often when monetary policy is really easy, it (low interest rates) becomes the residual policy of choice," the newspaper quoted Rajan as saying, adding that "other instruments of policy" may be needed to encourage economic growth.



Rajan, who was immensely popular amongst the Indian public and media during his tenure, officially stepped down on Sunday, with deputy governor Urjit Patel taking over. Rajan was widely credited with bringing inflation down in India, stabilising the rupee and creating a stable environment for growth.

He slashed interest rates to their lowest level since 2011 but angered some in the ruling Bharatiya Janata Party (BJP) who wanted deeper cuts intended to boost growth further. The former governor, who returns to a life of academia in Chicago, told the New York Times in the article published Sunday he did not think that was the reason his three-year-term was not renewed by the government.

In a separate interview with the Financial Times, Rajan predicted that his reforms, including setting inflation targets and tackling bad bank loans, would continue. "Broadly speaking, I think we have sort of unfrozen an older equilibrium and moved the system towards a new equilibrium. My sense is that momentum cannot be and will not be arrested," he told the paper.