Rajan: Urging emerging markets to have a bigger voice in global debates.

Reuters
Mumbai


India’s central bank governor urged the International Monetary Fund yesterday to play an active role in questioning the stimulus policies of developed economies and called on emerging markets to have a bigger voice in global debates.
Raghuram Rajan, a former chief economist of the IMF, said developed countries were adopting monetary policies without consideration for the negative impact they have on the global economy and he noted emerging markets were engaging in currency intervention that sparked competitive devaluations.
In a speech ahead of a G20 summit in Turkey next month, Rajan said it was time for policymakers, led by the IMF, to address these “extreme” policies, otherwise “we have to worry where this ends.”
“The IMF has been sitting on the sidelines and applauding these kinds of policies right from when they have been initiated, and hasn’t really questioned the value of these kinds of policies,” he told a G20 consultation meeting.
“We can do better,” he said, calling on emerging markets to push back against such policies.
Rajan did not single out any one country, but he has emerged as a leading critic of ultra-loose monetary policies and those that he says have purposefully pushed down their currencies to gain a competitive advantage.
Some central banks, including those in the US and the eurozone, adopted so-called quantitative easing policies to counter the global financial crisis. After cutting rates to zero, they pumped cash into their economies to try to revive economic activity. The US is now considering raising interest rates for the first time since 2006.
Indian media has speculated that Rajan could be a contender to head the IMF after the five-year term of the current head, Christine Lagarde, ends in 2016. Rajan denies any interest in the position and his three-year tenure at the RBI doesn’t end until September 2016.  Since his RBI appointment in 2013, Rajan has called on emerging markets to have a bigger voice globally, including at the IMF. Otherwise, industrialised economies will always lead the debate, he says.  Rajan said it was critical emerging markets develop more capable economists, who can help steer discussions among policymakers globally.
“We must, across the emerging world, realise that some of the reasons why global governance seems to be against us is we are not putting enough resources into this,” he said.
“Yes, we go to our think tanks, etc. But we don’t have people working in government who have that kind of training, that kind of capacity,” he added.

Rajan unclogs India monetary plumbing as banks finally cut rates
Bloomberg
New Delhi


India’s central bank governor Raghuram Rajan’s plan to empower the markets is steadily eroding the ability of Indian lenders to avoid passing on policy rate cuts.
Commercial banks have transmitted about 70 of 125 basis points of reductions this year, more than half of which came in the past few weeks after Rajan slashed the benchmark repurchase rate more than economists expected. His move to allow foreign investors to buy more Indian bonds pushed yields to the lowest since July 2013 before a shift next year that’ll force banks to align their lending costs more closely to market rates.
“Before the September policy meeting, transmission wasn’t happening,” said Anubhuti Sahay, a Mumbai-based economist at Standard Chartered. RBI’s actions “are likely to further improve monetary transmission,” she said.
Prime Minister Narendra Modi’s administration is betting on cheaper loans to spur investment by boosting credit growth from near a 20-year-low. Rajan is now starting to fix the plumbing in India’s monetary system after spending the first half of his three-year term stabilising the rupee and pushing down what was Asia’s fastest inflation.
Rajan’s plan has three major steps: He’s begun to push down market rates by keeping policy accommodative and ushering in new investors; come April 1, all banks will have to move to a new method of setting their lending costs; and eventually he aims to shift to a completely market-determined model.
“We will have to move towards a benchmark which is set by the market rather than by the banks themselves,” he told reporters last month. “But, we are looking at some of the bank concerns and we will think about how to respond to those concerns in a way that moves the system forward.”
Overseas funds can own as much as 5% of India’s total outstanding debt by March 2018 – from about 3.8% now – in a move that will help attract Rs1.2tn ($18.4bn) in inflows, the RBI said on September 29. The resulting rally pushed the yield on benchmark 10-year notes to 7.51% on October 5, the lowest since July 2013. It was at 7.57% as of 10:03 am in Mumbai yesterday.
“The transmission in bond yields has been very impressive post the opening of debt limits,” said Ajay Manglunia, the Mumbai-based head of fixed income at Edelweiss Financial Services. “What’s happening is the RBI is putting in place a plan which will further improve monetary policy transmission.” A reduction in market rates sets the stage for Rajan’s biggest regulatory move yet: a move to more market-linked rates.
From April 1, Rajan has proposed that all banks calculate so-called base rates using the marginal cost of funds, which takes into account market changes. Banks currently use average costing, citing compliance difficulties and increasing bad loans that lock up funds.