Next crisis could be related to currency or fiscal: RBI

MUMBAI: Reserve Bank Governor D Subbarao today said there is a possibility that stimulus measures rolled out by central banks and governments globally to resolve the financial crisis may lead to another crisis in the future.

This could be in the form of currency or fiscal crisis, the Governor said at a global conference organised by the RBI here.

"I worry that in resolving this financial crisis perhaps we are sowing the seeds of the next crisis...next crisis could be a currency or a fiscal crisis," Subbarao said.

With a view to support crisis-struck economies primarily in US and Europe, which were severely hit by the global financial meltdown, central banks and Governments across the world rolled out stimulus packages running into trillions of dollars.

The crisis, which originated in US with the collapse of Lehman Brothers, spread to almost all major economies in Europe, Australia while its spill-over impact caused slowdown in the growth of emerging economies such as India.

Yesterday, Subbarao had said that the financial crisis has dented the credibility of central banks worldwide and said that the case for central bank independence is coming under increasing assault as a result of crisis-led developments.

Referring to India, Subbarao said the RBI used several of its prudential tools to tackle the crisis and is prepared to use its monetary policy tools to avert financial instability in the economy.

Unlike many other central banks which are mainly inflation focused, the RBI cannot juts focus only on inflation but need to factor in growth and financial stability while forming its policy moves, he said.

"We cannot be focused just on inflation. We are concerned about inflation but we are concerned about other variables as well...there are growth concerns, there are concerns on financial stability," Subbarao said.



In order to stimulate demand and support a sagging economy, the RBI reduced its key policy rates several times since October, 2008.

However, it upped the CRR or the cash component banks have to park with it by 0.75 per cent to 5.75 per cent last month to arrest inflation.