Rajan did not imply world facing new Great Depression, says RBI

With Raghuram Rajan's comments on 1930s-like problems resurfacing having created a flutter, the RBI today said the Governor did not imply there being an imminent risk of the world economy slipping again into the Great Depression as that was caused by "many factors".

The Reserve Bank, however, added Rajan indeed said that "the policies followed by major central banks around the world were in danger of slipping into the kind of beggar-thy- neighbour strategies that were followed in the 1930s".

"The Great Depression was a period of great turmoil, caused by many factors and not just beggar-thy-neighbour policies. Governor Rajan did not imply or suggest that there was any risk of the world economy, which is in steady recovery notwithstanding uncertainties like those in the Euro area, slipping into a new Great Depression."

This strategy involves 'making a beggar out of neighbouring nations' and is typically aimed at increasing the demand for one's exports while reducing the reliance on imports. This is generally done by devaluing the nation's currency to make the exports to other countries cheaper.Delivering a lecture at london Business School on Thursday, Rajan had asked central banks from across the world to revisit the "rules of the game" to find a solution, as he warned of problems similar to the Great Depression of 1930s emerging again."I am not going to venture a guess as to how we establish new rules of the game. It has to be international discussion, international consensus built over time after much research and much action," the Reserve Bank of India Governor had said.