Asked specifically 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.

The RBI Governor was addressing the ‘Perspectives’ conference organised by AQR Asset Management Institute at the LBS campus on the subject of ‘The Central Banker Perspective’.

He highlighted the tremendous pressure for growth which, in turn, creates enormous pressure on central banks to take action.

Rajan stressed that seven years on from the economic crisis, the central banks have done a lot during 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.

Rajan also highlighted the need for countries to work together on capital flows, “We have to become more aware of the spill-over effects of our actions and the rules of the game that we have — of what is allowed and what is not allowed — needs to be revisited,” he said.

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