Ignoring Rajan's 2005 prediction a big mistake, says IMF's Christine Lagarde

International Monetary Fund (IMF) Managing Director Christine Lagarde heaped praises on Reserve Bank of India (RBI) Governor Raghuram Rajan on Tuesday for his correct prediction of the 2008 economic crisis saying IMF committed a big mistake by not listening to his forecast.

At an event organised by the RBI in the financial capital where Rajan was also present, Lagarde , said, "The period when nobody was really forecasting the prices that what he did... thing that was one of his many, many accomplishments. One of the many drawbacks of the Fund was not listen to him enough at that time. But we do now pay attention to anything that 'Raghu' says."

Rajan was the chief economist and research director at the IMF during 2003-2006. He is credited with correctly forecasting in 2005 an impending global financial crisis at the annual meeting of prominent economists and bankers at Jackson Hole, US.

Praising the RBI governor further, Lagarde said that India's monetary policy rests in good hands and Rajan is taking several encouraging steps, including allowing a greater role for private sector banks.

She praised Rajan for deftly steering the economy after the US Federal Reserve hinted at withdrawing its easy money policy in May 2013.

"Raghu certainly has been very busy since he took over as the RBI governor in September 2013. He has deftly steered the Indian economy to safer waters after it was hit by the market turmoil following the 'taper tantrum' episode of mid- 2013," she told the gathering of economists and bankers.

Lagarde, who is here for a twoday visit, welcomed Rajan's recent step to introduce flexible inflation targeting as the new regime for conducting monetary policy.

Lagarde also warned of a repeat of high market volatility and capital outflow when the US Fed hikes rates next time and asked India and other emerging markets to be prepared for such an eventuality. Echoing Rajan, she also called for greater co-ordination between Central bankers because the timing of the interest rate lift-off and the pace of subsequent rate increases can still surprise markets.