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The Rajan prophecy

LiveMint logoLiveMint 14-05-2014 Livemint

It is now a little more than a month since Reserve Bank of India (RBI) governor Raghuram Rajan set the cat among the pigeons. He said in a speech in Washington that emerging economies such as India were justified in intervening in the foreign exchange market to hold down their exchange rates while building huge reserves, as long as central banks in rich countries continue with quantitative easing without considering its impact on the rest of the world.

RBI has rebuilt its foreign exchange reserves after the defence of the rupee ended in September with $38 billion of dollar purchases. And it continues to do so: reserves have risen by $8.2 billion more since the beginning of the new fiscal year. Other central banks in Indonesia and Turkey have also been adding to reserves. And the Chinese have begun to push their currency down as well after a long period when it was allowed to move up against the dollar.

Has what Rajan warned about already begun?

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