Raghuram Rajan, after stepping down as the Governor of the Reserve Bank of India has warned that 'low interest rates globally could distort markets and would be difficult to abandon'. He said that low interest rates should not be a substitute for “other instruments of policy” and 'various kinds of reforms' that are needed to encourage growth.
Rajan further stated that countries around the world, including the United States and Europe, have kept interest rates low as a way to encourage growth. But countries could become “trapped” by fear that when they eventually raised rates, they 'would see growth slowdown.
His views hold importance as the world's central banks appear to be at a loss about how to get global growth moving again and there are numbers of voices saying that low rates are not doing the job and that governments must take other, more politically difficult steps to reinvigorate growth.
Talking about India, Rajan said his tight monetary policy had helped bring India's rate of inflation - currently about 6 percent - down to the upper end of the government's target range and expressed hope that his successor will finish the process of cleaning bank balance sheets.