Former Reserve Bank of India governor Raghuram Rajan has warned countries against using low interest rates to boost their economic growth, AFP reported on Monday. The economist said central banks across the world will find it difficult to raise their policy rates because of a fear that the move will “see growth slowdown”.
The former central bank chief told The New York Times that lowering interest rates “becomes the residual policy of choice” when “monetary policy is really easy”, AFP reported. He further said cuts in rates cannot be made a substitute for “other instruments of policy”, adding that “various kinds of reforms” will be needed to boost a country’s economic growth. He further told the daily that that the RBI had done “exactly what was needed” during his tenure by targeting inflation and forcing banks to begin a “clean-up” of bad debts on their ledgers.
Rajan had received criticism from various sectors for the RBI’s policies while he headed it. Among them was Bharatiya Janata Party leader Subramanian Swamy, who accused him of squeezing small and medium businesses as well as increasing unemployment in the country. Following Swamy’s criticism, the then-governor had announced he would not seek a second term. RBI Deputy Governor Urjit Patel was since named Rajan’s successor. He took over as governor on Sunday.