Reserve Bank Governor Raghuram Rajan today flayed easy monetary policy of central banks in advanced economies saying it is "more cause than medicine", while asserting that global rules require a fresh relook to ensure stable and sustainable economic growth.
Rajan, widely acknowledged for correctly predicting 2008 financial crisis, also warned about "next leg of a wearisome cycle" unless advanced economies and emerging nations adapt to the new requirements.
In his keynote address to Brookings Institution, an American think-tank, Rajan focused on unconventional monetary policies.
"A first step to prescribing the right medicine is to recognise the cause of the sickness. "Extreme monetary easing, in my view, is more cause than medicine," he said.
"The sooner we recognise that, the more sustainable the world growth we will have," he added.
He said global rules of the game need to be relooked at to ensure stable and sustainable growth and both advanced economies and emerging economies need to adapt.
"To ensure stable and sustainable growth, international rules of the game need to be revisited. Both advanced economies and emerging economies need to adapt, else I fear we are about to embark on the next leg of a wearisome cycle."
In the wake of global financial crisis in 2008, central banks like the US Federal Reserve have resorted to near zero interest rates to boost growth. The Fed had also started massive bond purchase programme to push down borrowing costs and inject liquidity, leading to capital inflows to emerging economies like India.
When the Federal Reserve last year announced gradually rolling back the bond purchase programme, there was huge capital flight out of emerging markets causing sharp decline currency value. The Indian rupee had plunged to life time low of 68 due to capital outflows in August last year.
