Air of pessimism and anxiety has gripped investors world over as global markets continue their falling spree with no end in sight. While markets stare at growling bears, world's renowned business leaders and public figures kicked off the World Economic Forum's annual meeting in Davos to 'improve the state of the world'.
Speaking at the first official session of the WEF's five-day annual meet, which started on Wednesday, RBI governor Raghuram Rajan in his calm demeanour assured that market turmoil is temporary and equities will find their base soon with foreign investors coming back to emerging markets.
We have compiled key takeaways from what Raghuram Rajan said at World Economic Forum:
1) Monetary policies alone cannot change the world
Asserting that monetary policies alone cannot change the world, the RBI Governor said that there are various other tools to carry forward reforms and boost growth.
"The good news across the world is that we have realised that monetary policies are not going to change the world and there are much more to the reforms. Not just enabling but also creating the underlying framework for growth is the one which will take us a long way," said Rajan adding that monetary stimulus has largely run its course.
2) Investors will look at stable emerging markets, including India
The RBI governor allayed concerns over volatility in currency and stock markets and said things would stabilise. expressing optimism that people will look at stable emerging markets, including India, Rajan said the falls in these economies are actually 'markets' problem' and not of the economy.
"My sense is that after the initial volatility, things will stabilise, people will try and look for the good, stable emerging markets. India is one of them. Our growth is pretty good, all the other indicators seem to be going well," Rajan said.
3) Tremendous changes are taking place in emerging markets
Rajan said there have been huge flows in emerging markets but one should also understand that tremendous changes are taking place in emerging markets.
"For example in India there is a massive online market which allows people in small towns and villages to buy things online. Real estate growth has been huge. A trader from Kashmir can sell his carpets to customers anywhere in the world," he said.
4) Wars create growth opportunity but destroys GDP
With terror attacks and war-like situation in various countries hogging the talk time at WEF Annual Meeting, Rajan said wars should never be seen as opportunities to push economic growth.
"War does create opportunity for growth, but it certainly destroys your GDP. I am sure people would love to have bigger GDP rather than a higher growth. I don't think war is an option," said RBI Chief.
He was replying to a question on whether the countries should create war funds to fight wars rather than printing more money.
5) RBI's monetary policy and inflation
On RBI's monetary policy stance next month, he said the rest of the world is facing a deflationary environment and "that will help India disinflate". He believes lower oil prices will help country meet January inflation target of below 6 per cent.
"Going forward, we have to disinflate a little more. So, at the meeting (on February 2), we will take all these factors into account and decide what the next step is, but broadly I would say we are on the right path," the central banker said.
The rupee, Rajan said, has been "relatively strong" in the EM currency basket, but India is affected by the "same kind of jitters" impacting other world markets.
7) We are in a world of make believe
Stating that "we are in a world of make believe," Rajan wondered, "what exactly are the fundamentals?".
"Perhaps it takes time for efforts to show up in terms of asset prices, productivity etc and then times have changed. Earlier we used to see movie in theatres but now we see on handheld devices," he noted.
8) Central Banker on Central Banks
RBI Chief has never been fond of easy liquidity policy that the global central banks have followed to promote growth. He in fact slammed International Monetary Fund once for staying on the sidelines and applauding accommodative policies of developed nations which create ripples in the emerging markets.
At WEF, he noted, "It's not very clear whether we have benefitted from the way the rate tightening happened in the recent years at various central banks. Some central bankers in the past including in the US had indeed done a great job."
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