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Rajan urges regulators to ‘lean into the wind’

RBI Governor on Tuesday called for regulators to exert greater caution.

Written by Press Trust Of India | Rome | Published: November 13, 2013 1:47:56 am

Reserve Bank of India Governor Raghuram Rajan on Tuesday called for regulators to exert greater caution when faced with the potentially inflammatory mix of asset price inflation and easy credit.

Addressing the Bank of Italy on lessons learned after the economic crisis of 2007 to 2009,Rajan said the key to getting the benefits of financial access was to “always be conservative,taking away the punch (bowl) when the party gets going.” Looking back at the Great Depression in the US in the 1930s,Rajan said it was clear that greater credit availability tended to make the economy sensitive to shocks.

“What does this mean for prudential risk management? It means it may make sense to lean into the wind,” he said,using a term taken to mean the tightening of monetary conditions when an economy is strong but before evident signs of overheating appear.

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