Raghuram Rajan's comments did not imply risk of Great Depression: RBI

Reserve Bank of India (RBI) governor Raghuram Rajan's comments on policies followed by Central banks of leading western nations have triggered a major global debate.

The RBI said on Sunday that Rajan did not imply that there is an imminent risk of the world economy slipping again into a Great Depression as that was caused by many factors.

According to an RBI statement, what Rajan "did say, in his remarks, made off the attached written text, was 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".

He then called for new rules of the game in the international monetary system. The Great Depression was a period of great turmoil caused by many factors and not just beggar-thy-neighbour policies, the RBI statement points out.

"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," the statement added.

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 exports to other countries cheaper.

The RBI said that a section of the media "has mischaracterised governor Raghuram Rajan's remarks at the AQR conference at London Business School on June 25 as saying the world is at risk of a Great Depression".