India's departing central banker offers a fresh warning

Mumbai

THREE years before the 2008 global financial crisis, an Indian economist named Raghuram Rajan presciently warned a sceptical audience of top economic thinkers that excessive risk threatened the entire global financial system.

As Mr Rajan stepped down on Sunday as India's top central banker, following intense criticism at home, he offered a new warning: low interest rates globally could distort markets and would be difficult to abandon.

Countries around the world, including the United States and Europe, have kept interest rates low as a way to encourage growth. But countries could become "trapped" by fear that when they eventually raised rates, they "would see growth slow down", he felt.

Low interest rates should not be a substitute for "other instruments of policy" and "various kinds of reforms" that are needed to encourage growth, Mr Rajan said in a recent interview with The New York Times…