India: Need global rules of conduct for central banks: India Central Bank Chief

India’s Central Bank Governor Raghuram Rajan on Saturday called for a system for assessing the wider impact of monetary policies of world central banks, inclunding unconventional tools and their spillover result.

The European Central Bank before this week eased monetary policy further while the Bank of Japan has as well taken interest rates into negative territory for the initial time.

Asserting that unconventional monetary policy used by industrialised nations has impact globally, the Indian Central Bank chief said there was a need to discuss the issue and analyse its spillover result.

Rajan proposed that a group of academics should measure and analyse the “spillover” effects of monetary policies and indicate which should be used and which avoided. He suggested a traffic light system, grading policies green, orange or red.

Right way to measure spillovers of a policy is to measure their welfare, he said.

Speaking at the Advancing Asia Conference, co-hosted by India and IMF, he said a group of “eminent academics with reasonable representation across the globe” should be set up to analyse and grade various policies.

These could be again discussed at world forums such as the G-20, and from presently on lead to possible changes of IMF rules or a new international agreement.

Given the importance of spillovers from monetary policies, particularly in the face of globally low inflation, it is significant to start building a world consensus on how to get better outcomes for the world, he said.

He, however, warned that a strong policy prescription may not be possible any minute at this time even with economic analysis of issues at an early stage, as a number of country authorities like central banks have explicit domestic mandates.

“The international community has a choice. We can pretend all is well with the world financial non-system and hope that nothing goes spectacularly wrong. Or we can start building a system for the integrated world of the twenty-initial century. I do hope we can consider some initial steps,” he said.

Terming monetary policy globally as complicated, the Governor said, that does mean that there should not be any discussion on it.

“As we discuss it, we will develop clearer rules of the game. What makes sense what does not make sense, What is fuzzy and study it better to understand if that can be allowed,” he said.

There is no doubt that instantly next the 2008 crisis, unconventional programmes were necessary to repair the economy, he said.

“The initial wave of unconventional policies was absolutely necessary and significant for saving the system. Next 6-7 years of a policy perhaps we have to examine whether we should keep doing it regardless of the very little evidence of it is having the benefits of what we want,” he said.

There has been an impact of unconventional monetary policy on various nations inclunding India, he said.