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In an interview to Bloomberg TV on Thursday, Rajan said emerging countries have been the drivers of growth, pulling the global economy out of the 2008 recession and that developed nations should now play their part.
“Industrial countries have to play a part in restoring that, and they can’t at this point wash their hands off and say we’ll do what we need to and you do the adjustment.”
“Emerging markets tried to support global growth by huge fiscal and monetary stimulus,” he said.
Rajan said global monetary cooperation “has broken down” hitting out at the US Federal Reserve’s decision to withdraw its monetary stimulus program, an exit many emerging nations have branded as ‘unsynchronized’.
The US Federal Reserve announced a $10bn reduction in its monthly bond purchases from $75bn to $65bn in the second straight month of tapering its stimulus program.
“Fortunately the IMF has stopped giving this as its mantra, but you hear from the industrial countries: We’ll do what we have to do, the markets will adjust and you can decide what you want to do,” Rajan said.
Rajan warned that unless there was greater coordination, industrialised nations “may not like the kinds of adjustments we (emerging markets) will be forced to do down the line”.
Michael Gayed, chief investment strategist and co-portfolio manager at Pension Partners, says that the argument that as the Federal Reserve tapers its bond buying, emerging market stocks will end up suffering from less liquidity in the US is an illogical one.
“One cannot claim that an end to QE is bearish for emerging market stocks when QE never benefited them to begin with. Furthermore, the link between emerging markets is not between US and stimulus. Rather, the link is between the US and inflation expectations. If they rise as the Federal Reserve reduces stimulus (or rather if they continue to), then overseas assets could significantly outperform and play catch-up,” Gayed told The BRICS Post.
The Indian Finance Ministry asserted on Thursday that the Fed’s decision to trim its monetary stimulus will not affect the Indian markets and all steps would be taken by the Central Bank and the government to ensure financial stability.
“We have added to our foreign exchange reserves which stand at $295 billion. FDI and FII inflows continue to be robust, liquidity is comfortable, stronger regulations have been put in place in the capital markets, the investment cycle appears to have turned positive, credit demand from key sectors is strong, and WPI inflation has moderated,” a Ministry statement said.