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Rajan questions merit of low interest rates

business Updated: Sep 27, 2013 00:50 IST
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Reserve Bank of India governor Raghuram Rajan is questioning whether current ultra-low interest rates are the right way to return to growth after the financial crisis.

Central banks warded off a collapse of the global financial system through bank bailouts and rate cuts, and central bankers became "heroes".

But global growth since then has been disappointing, and it was time to ask if there were better tools than the rock bottom rates used by major central banks including the US Fed, Bank of England, Bank of Japan and European Central Bank, he said.

Rajan said low rates could have unintended consequences such as encouraging people in their 60s to save instead of spend — because the low returns mean they are unable to reach their retirement savings goal.

He was appearing at Frankfurt's Goethe University to accept the Deutsche Bank prize in financial economics. In his speech, Rajan said he did not have answers, but said it was time to ask, "are ultra-low rates the solution or part of the problem?"

He also warned that too much stimulus, especially in emerging markets, had been the root of much of the trouble. In India, "there were three stimulus packages, probably two too many compared to what we needed," he said.