RBI Chief Rajan Urges Vigilance On Fragilities In Global Economy

(RTTNews) - While the global economy may not be on the brink of another financial crisis, policymakers must carefully watch some fragilities that have emerged, India's central bank governor Raghuram Rajan said.

In an interview to the BBC on Tuesday, Rajan said,"Based on what I've seen so far there's no strong reason to believe that we're on the verge of another crisis."

"But we have to be vigilant about some of those fragilities that have built up."

He also cautioned about attributing every recent turmoil in the financial markets to China. "There are a number of concerns about when interest rates will normalize around the world - and there's also questions about whether some markets are just too high," Rajan, who heads the Reserve Bank of India, said.

Regarding political pressure on central banks, Rajan expressed concern on "the immense burden for action that is falling on central banks", adding that it was "legitimate for central banks" to convey that they cannot carry it all themselves, referring to China.

"In fact we may not have the tools to do everything that is asked of us. Don't keep asking us to do more because at some point we get into territory where the consequences may be more bad than good if we actually act," he cautioned.

Fears of a sharp slowdown in China have strengthened recently in the backdrop of weak economic data. Efforts by the government and the central bank, such as devaluing the yuan and market interventions, apparently had little effect as the Chinese stock market plunged this week, leading to strong capital outflows.

In its latest bid to calm concerns over the economy, the People's Bank of China cut interest rates in a surprise move on Tuesday, which was the fifth reduction since November. The bank also lowered its reserve ratio and scrapped the upper ceiling on deposits with a tenure of more than one year.