Central banking isn’t a contact sport like football, or even cricket. But the head of India’s central bank, who until recently was living and working in the U.S., is throwing some sharp elbows at his counterparts at the Federal Reserve. This is as close to a brawl as you’re likely to see in the genteel world of official monetary policy.
In an appearance on Bloomberg TV India yesterday that made headlines around the world, Reserve Bank of India Governor Raghuram Rajan said “international monetary cooperation has broken down.” Lest there be any confusion about what caused the breakdown, Rajan said, “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.’”
Rajan’s reference to “industrial countries” pertains mostly to the U.S., where the Federal Reserve announced yesterday that it would further taper its bond-buying. The Fed’s move puts upward pressure on U.S. interest rates. That in turn leads investors to snatch their money out of countries like India and put it in U.S. securities that suddenly offer more attractive yields. The result: downward pressure on India’s currency, the rupee. When the rupee falls, Indian imports get more expensive. That makes Indians poorer and raises the inflation rate, which is already running at around 10 percent a year.
via India vs. the U.S.: When Central Bankers Collide – Businessweek.
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