RBI Governor Raghuram Rajan today stressed on the need for well-capitalised multilateral institutions and a consensus on free trade, open markets to overcome the global economic slowdown.
Delivering a speech to mark the 65th anniversary of Sri Lanka's Central Bank in Colombo, he said the current economic woes of the world was affecting all nations and urgent action was needed.
"The current 'non-system' in international monetary policy is, in my view, a source of substantial risk, both to sustainable growth as well as to the financial sector.
"It is not an industrial country problem, nor an emerging market problem, it is a problem of collective action. We are being pushed towards competitive monetary easing and musical crises."
He warned that weak aggregate demand across the world may be leading nations to engage in a "risky competition for a greater share of it."
"We are thereby also creating financial sector risks for when unconventional policies end. We need stronger well-capitalised multilateral institutions with widespread legitimacy, some of which can provide patient capital and others that can monitor new rules of the game.
"And each one of us has to work hard in our own countries to develop a consensus for free trade, open markets, and responsible global citizenry. If we can achieve all this even as recent economic events make us more parochial and inward-looking, we will truly have set the stage for the strong sustainable growth we all desperately need."
He said there are few areas of robust growth around the world, but the present period of slow growth is particularly dangerous as both industrial countries and emerging markets needed high growth to manage domestic political tensions.
"In an environment of such tensions, there is a tremendous pressure for growth in different countries and such countries are more likely to focus on the policies attempting to divert growth from others rather than creating new growth.
