Not listening to Raghuram Rajan was a big mistake: IMF chief
Raghuram Rajan was chief economist and research director at IMF during 2003-2006
Mumbai: Showering fulsome praise on Dr Raghuram Rajan, IMF chief Christine Lagarde on Tuesday said that the multilateral funding agency’s biggest mistake was to ignore Dr Rajan’s prediction of the 2008 credit crisis.
Dr Rajan, now the Reserve Bank governor, was the chief economist and research director at the IMF during 2003-2006. He is credited with forecasting in 2005 an impending global financial crisis at the annual meeting of prominent economists and bankers at Jackson Hole in the United States.
“The period when nobody was really forecasting the prices that what he did... that was one of his many many accomplishments. One of the many drawbacks of the Fund (IMF) was not listen to him enough at that time. But, we do now pay attention to anything that ‘Raghu’ says,” Ms Lagarde said at an event organised by the RBI, which the governor chaired Tuesday evening.
Ms Lagarde said India’s monetary policy “rests in good hands” and Dr Rajan was taking several encouraging steps including allowing a greater role for private sector banks.”
She praised Dr Rajan for “deftly” steering the Indian economy after the US Fed hinted at withdrawing its easy money policy in May 2013.
“Raghu certainly has been very busy since he took over as the RBI governor in September 2013. He has deftly steered the Indian economy to safer waters after it was hit by the market turmoil following the ‘taper tantrum’ episode of mid-2013,” she told a gathering of economists and bankers.
Ms Lagarde, who was in India for a two-day visit, welcomed Dr Rajan’s recent step to introduce flexible inflation targeting as the new regime for conducting monetary policy.
Dr Rajan’s 2005 comments got him few friends and appreciation but lots of opprobrium and ridicule. He predicted the crisis when the US investor community was revelling in the high growth and stable financial conditions around the world.
He had argued that the rising complexities of the markets, which spawned more and more complicated instruments like credit-default swaps and mortgage-backed securities, had in fact made the global financial system a much riskier place.