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<h2>Raghuram Rajan Predicts that Global Economy is likely to be in Great Depression</h2>
1930 was the year when great depression in economy haunted market but, RBI Governor Raghuram Rajan asked central banks from across the world to define “new rules of the game" as he warned that the global economy depression is likely to occur while addressing the 'Perspectives' conference organized by AQR Asset Management Institute at the LBS campus on the subject of 'The Central Banker Perspective'.
"We need rules of the game in order to affect a better solution. I think it is time to start debating what should the global rules of the game be on what is allowed in terms of central bank action," he said at a London Business School (LBS) conference last evening.
"I am not going to venture a guess as to how we establish new rules of the game. It has to be international discussion, international consensus built over time after much research and action," Dr Rajan said.
"But I do worry that we are slowly slipping into the kind of problems that we had in the thirties in attempts to activate growth. And, I think it's a problem for the world. It's not just a problem for the industrial countries or emerging markets, now it's a broader game," he noted.
Asked about interest rate cuts from an Indian perspective, he said, "I try to shut out market reactions as far as I can. We (India) are still in a situation where we have to spur investment and I am worried more about that."
"So I shut out the asset price (hike) reaction and think more about, is this going to bring bank lending rates down and therefore channel cheaper credit into firms and then they will invest. However, the issue gets much more complicated for other markets," he said.
Dr Rajan stated that the central banks have done an incredulous and ample amount of work seven years on from the economic crisis, as well as post-crisis.
"The question is are we now moving into the territory in trying to produce growth out of nowhere we are in fact shifting growth from each other, rather than creating growth. Of course, there is past history of this during the Great Depression when we got into competitive devaluation," he warned.