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Rajan questions merit of low interest rates
Highlights
RBI Chief Raghuram Rajan Questions Merit of Low Interest Rates. The new head of India's central bank is questioning whether current ultra-low interest rates are the right way to return to growth after the financial crisis. Raghuram Rajan, the head of the Reserve Bank of India (RBI), says central banks warded off a collapse of the global financial system through bank bailouts and rate cuts. Central bankers, he said, were "heroes" for halting the collapse.
The new head of India's central bank is questioning whether current ultra-low interest rates are the right way to return to growth after the financial crisis. Raghuram Rajan, the head of the Reserve Bank of India (RBI), says central banks warded off a collapse of the global financial system through bank bailouts and rate cuts. Central bankers, he said, were "heroes" for halting the collapse.
But global growth since then has been disappointing and Rajan said it was time to ask if there were better tools than the rock bottom rates used by major central banks in the rich world, including the US Federal Reserve, Bank of England, Bank of Japan, and European Central Bank. Rajan said low rates could have unintended consequences. He says, for instance, that they could encourage people in their 60s to save instead of spend, because low returns mean they are unable to reach their retirement savings goal.
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