Stressing investors should not be scared of transient volatility in markets, India's central bank governor Raghuram Rajan on Friday said the problems facing the global economy include low productivity and low investments with people saving more and spending less.
"We should not be scared of (markets) volatility," Rajan said here addressing a meeting business leaders from G20 countries called the B20 meet, a statement said.
The Reserve Bank of India (RBI) head said finance "is only a lubricant to growth" and it would be the overall economic policies of the countries that would determine their basic growth momentum, adding the current problems for the global economy include people saving more and spending less, low productivity and low investments.
Rajan also warned that central banks worldwide might have engendered excessive fragility in the system.
When Rajan took charge at RBI in 2013 at a time the US Federal Reserve had declared its intent to wind down its stimulus programme, the rupee plunged in value in respect of the US dollar on fears about a spiralling current account deficit.
In a series of measures, Rajan managed to stabilize the currency that also brought back investors. "Rajan's disciplined and focussed approach in leading the Reserve Bank during his first year as governor was remarkably impressive," British magazine Central Banking said earlier this year giving Rajan their central banker of the year award for 2015.
He had predicted the 2008 markets crash caused by the housing market crisis in the US that put its economy into deep recession setting off a global slowdown. In 2011, he published the acclaimed "Fault Lines" on how hidden financial fractures threaten the world economy.
Rajan, in 2005, had argued that increasingly complex markets with myriad instruments of credit and mortgage-backed securities in ever greater quantities had made the global financial system a risky place.
Almost a decade down the line, Rajan is stronger in his belief that global markets now are at the risk of a crash due to the competitive loose monetary policies being adopted by developed economies.
Pointing to the very low interest rate policies of the US Federal Reserve, the Bank of Japan and the Bank of England in a bid to stimulate their economies, Rajan has been warning that emerging markets are especially vulnerable to big shifts in capital flows triggered by the unprecedented monetary accommodation in rich countries.
