Raghuram Rajan's Assessment of Market Turmoil

Rajan's Assessment of Market Turmoil

Raghuram Rajan, Governor Reserve Bank of India is well-known for his global standing. This issue  once again stood out  when Shri Rajan spoke at the annual meeting of the World Economic Forum in Davos. Raghuram Rajan not only raised an otherwise depressing environment but also gave world leaders enough confidence to know what is happening around the world. In fact what is happening is not such a big disaster but a consequence of what the most of the global economies had done over the past few years through long spells of easy liquidity regimes.

 
Dr. Rajan found the currency phase of fear psychosis as jitters about jitters and said "Everybody is looking at everybody else and saying, ‘Is this the point where they take the money off the table?’ because markets have moved up quite a bit. So that's part of it. Part of it is wondering what is really happening in China, why did the Renminbi start moving a little, and is there more to come? And of course the oil price, how far will it go and does it affect some entity, some lever entity somewhere, which has oil exposure, and does that create problems? So I think some jitters are really jitters about jitters, and some is really wondering about fundamentals,".
 
Dr. Rajan even went on shrug off the turmoil in financial markets but stopped short of calling it irrational. The fundamentals of the global economy doesn't justify the decline in asset prices, he said, adding that it's hard to tell what the right level for asset prices are, but nothing has changed dramatically over the last few weeks to actually push the world economy downwards. There is a fair amount of sense that, we're trudging along more slowly than we should, but it's not the abyss that we're looking at, he said.
 
So, Rajan said keep doing the good work and things would work out for you. "At this point if you are an emerging market, you focus on the fundamentals, try and get inflation down, try and get your current account deficit down, keep your fiscal on target, do all the good things, and then people reward you. They take the money off the table in a hurry when they are doing it everywhere, but then they come back, and so my sense is that after the initial volatility, things will stabilise, people will try and look for the good, stable emerging markets. India is one of them. Our growth is pretty good, all the other indicators seem to be going well," Rajan said.

Dr. Rajan had a fair assessment about the domestic economy itself, he is the of opinion that the rest of the world is facing a deflationary environment while this is helping India in disinflation. He said deflationary environment helped India quite a bit so far. Lower price of oil will also help growing economy like India. Her said further, we have to disinflate a little more, so we should  take all these factors into account and decide what the next step is but India is on the right path.
 
According to Dr. Rajan now the international investor wants to be convinced that Indian economy will stay the course, and will disinflate, as international investors prefer lower inflation, rather than higher inflation. And therefore at points of volatility it is significant to reassure them that it is indeed what our economy intend to do.