Sep 28, 2009 (LBO) – The global financial crisis was triggered by the loose monetary policy of the US Federal Reserve but central banks remained unregulated, a top Indian Reserve Bank official said. “The crisis has happened because of two things,” Reserve Bank of India deputy governor K C Chakrabarty said at the Sri Lanka Association of Professional Bankers annual sessions in Colombo.
“The monetary policy of the Federal Reserve and the other developed economies, in the (Fed Chairman Alan) Greenspan’s era and the second is growing global imbalances.”
Other economists have also blamed a series of Fed rates cuts from 2002 to 2003, for firing a bubble in commodities and assets, especially housing, which ultimately collapsed when rates were raised.
Low rates makes business discount the future at artificially low rates, pushing up prices, especially in housing, which are financed by long-term mortgages.
“The Fed’s monetary policy has been widely highlighted now for its role in supporting the most unpleasant thing, speculation.” Chakrabarty said.
Novel financial engineering had also created complex products during the boom.
“There is a thin margin between financial innovat