What Christine Lagarde said...
It was her first press briefing at the IMF World Banks Spring Meeting. She clearly stressed for the need for a full speed recovery going forward. Currently, countries are going through a three-speed recovery, meaning that there are three types of countries which are going through global recovery at this point in time.
The first is countries like India where recovery is currently has started and is on the way. The second are countries where recovery is on the mend and the third is where recovery is still about to take off.
Emerging markets need to be cautious of risk from financial excesses. This was also mentioned in the world economic outlook report which was released two days ago.
She also said that policymakers or regulators must look at unconventional tools for ensuring global recovery. The role of the European Central Bank (ECB) was stressed on. She said that ECB has more space for monetary easing going forward. The banking structure the banking system in the euro area must look at restructuring and reform at this point in time. So, those are the clear words from Christine Lagarde at this point in time.
What RBI governor Subbarao said...
Subbarao stressed on quantitative controls on capital flows are distorting and inefficient, but effective in the short term. Quantitative capital controls, in the form of the quantity of external commercial borrowings (ECBs) that India allows into the country, are effective only in the short term, but they are distorting and inefficient. Therefore, he said that we should look at other kinds of capital controls.
He also mentioned about the kind of price controls which are currently available. These are issues he raised like whether there is the need to look at capital controls for countries going forward. Also, he said that India is currently grappling with the twin problem of lower forex reserves and rupee depreciation. In a sense, India is now grappling with this problem of forex intervention and the challenge of rupee depreciation. So, therefore there is a need to ensure that if the regulator intervenes in the market, it must be successful.
So, the regulators must be careful when it comes to forex intervention. However, a lot of questions raised by the RBI governor at the session on the issue of capital account management.
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