Raghuram Rajan, the governor of
India's central bank, acknowledged that we may now be experiencing the
darker side of the massive monetary stimulus of past years.
"With
many central banks with their foots firmly pressed on the accelerator,
the variety of new aggressive monetary policies, it's not clear that
we've really benefited tremendously," Rajan said.
"To
some extent we may have reduced the room for other policies or reduced
the incentives for other policies. We're not quite sure what the
fundamental value of any asset is.
"And
I would suspect that this is probably what is going on today, that as
there is some anticipation that central banks will start reducing the
accommodation, asset prices are trying to find the appropriate level."
Axel
Weber, chairman of Swiss bank UBS and former head of the German
Bundesbank, pointed to the divergence between the U.S. Federal Reserve,
which is in tightening mode, and the European Central Bank (ECB), which
is expected to remain accommodative, as a source of volatility. But he
said this would not last long.
"The
issue is the current policy divergence which I think is driving some of
this international volatility. My view is this cannot last for long
because we've never seen a decoupling," Weber said, speaking on a panel
with Rajan.
"If
the U.S. were to stay course the dollar would continue to rise and I
think that would recouple the economies. So at some point you're going
to see the impact of current policies starting to mitigate."
Weber
also touched on the refugee crisis in Europe, saying it was likely to
"focus politicians' minds", on the one hand accelerating the drive
towards closer integration among euro zone members and making Europe
"more optional" for countries that don't share the single currency.
"Unless we have this bifurcation of interests in Europe I think Europe will continue to face challenges," he said.
By: Reuters (Switzerland).
Editing: Mark Heinrich.
Review: Emerging Market Formulations & Research Unit, Flagship Records.
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