Monetisation by RBI can’t be eternal, cautions Rajan


Mumbai, July 23

Former RBI Governor Raghuram Rajan on Thursday mentioned the central financial institution has been increasing its stability sheet and shopping for authorities debt on the again of extra liquidity amid the financial slowdown however cautioned that this comes at a value and can’t be an enduring answer.

No free lunches

The RBI has been increasing its stability sheet and it has been shopping for authorities debt. But successfully, in that course of, what it’s doing is borrowing from the banks on the reverse repo charge and lending on to the federal government — Raghuram Rajan, former RBI Governor

He mentioned central banks in lots of rising markets are resorting to such methods and disagreed with votaries of the “modern monetary theory” who help this, making it clear that there aren’t any free lunches.

“The RBI has been expanding its balance sheet and it has been buying government debt. But effectively, in that process, what it is doing is borrowing from the banks at the reverse repo rate and lending on to the government,” Rajan mentioned talking at a convention organised by Singaporean lender DBS Bank.

It might be famous that at current there’s extra liquidity within the system as individuals get extra threat averse and save extra and the demand for credit score is sluggish.

Rajan mentioned there are limits to monetisation and the method can go lengthy just for a restricted time frame. — PTI



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