RBI governor Rajan, when not being taken to task by a tie-less Bernanke, recently railed against QE spillovers. Most pertinently he said (with our emphasis):
By downplaying the adverse effects of cross-border monetary transmission of unconventional policies, we are overlooking the elephant in the post-crisis room. I see two dangers here. One is that any remaining rules of the game are breaking down. Our collective endorsement of unconventional monetary policies essentially says it is ok to distort asset prices if there are other domestic constraints to reviving growth, such as the zero-lower bound. But net spillovers, rather than fancy acronyms, should determine internationally acceptable policy.
Otherwise, countries could legitimately practice what they might call quantitative external easing or QEE, whereby they intervene to keep their exchange rate down and build huge reserves. The reason we frowned on QEE in the past is because we believed the adverse spillover effects for the rest of the world were significant. If we are unwilling, however, to evaluate all policies based on their spillover effects, there is no legitimate way multilateral institutions can declare that QEE contravenes the rules of the game. Indeed, some advanced economy central bankers have privately expressed their worry to me that QE “works” primarily by altering exchange rates, which makes it different from QEE only in degree rather than in kind.
“If you do a Volcker, you kill the supply side, and then you are in a bad situation,” Mr Rajan said during an interview in November. Erm…
If inflation truly is public enemy number one, then Indians at last have someone who may be up to the task. Step forward Raghuram Rajan, a few months into the role of central bank governor and India’s could-be Paul Volcker.
Awkward. But it’s his own fault. Read more
“I still find it difficult to imagine a father presenting his favourite daughter with a certificate for a gold-linked exchange traded fund on her big day,” says one senior policy maker.
That’s from a long Diwali read on India’s gold obsession by Avantika Chilkoti and James Crabtree which is well worth your time and to which we might add a cheeky few thoughts — it seems the RBI’s attempts to offer alternative to India’s gold-lust says more than a little about the limitations facing the central bank and Rajan. Read more
To be added to the growing collection of central bank educational tools… Frankly, this isn’t a patch on the ECB’s Top Floor or the BoE’s Monetary Policy Balloon (and I won’t even bother comparing it to Inflation Island, a giant of the genre) but, tbf, the RBI probably has less resources to throw at its gaming division.