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Stimulus measures may lead to another crisis: RBI
By siliconindia
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Wednesday, 17 February 2010, 23:40 IST
Mumbai: Reserve Bank of India (RBI) Governor D Subbarao expressed is fears that the stimulus packages rolled out by central banks and governments to resolve the global financial meltdown, could lead to another financial debacle. This could be in the form of currency or fiscal crisis, the Governor said, reports PTI.
"I worry that in resolving this financial crisis perhaps we are sowing the seeds of the next crisis - could be a currency or a fiscal crisis," Subbarao said. The crisis, which originated in the U.S. with the collapse of Lehman Brothers, spread to almost all major economies in Europe, Australia while its spill-over impact caused slowdown in the growth of emerging economies such as India.
Subbarao had said that the financial crisis has dented the credibility of central banks worldwide and said that the case for central bank independence is coming under increasing assault as a result of crisis-led developments. Referring to India, Subbarao said the RBI used several of its prudential tools to tackle the crisis and is prepared to use its monetary policy tools to avert financial instability in the economy.
"We cannot be focused just on inflation. We are concerned about inflation but we are concerned about other variables as well, there are growth concerns, there are concerns on financial stability," Subbarao said. In order to stimulate demand and support a sagging economy, the RBI reduced its key policy rates several times since October, 2008.