Reserve Bank of India (RBI) Governor D Subbarao said pre-crisis consensus is broken on three macroeconomic issues – capital account convertibility, central bank intervention in exchange rate market and
capital controls.
He said this while speaking at the IMF conference on Rethinking Macro Policy II in Washington DC.
The global financial crisis has broken the consensus that every country should eventually move towards a fully free capital account. He said the other thing in which the pre-crisis consensus is broken is the use of capital controls as a stabilisation tool.
The consensus before the crisis was that capital controls are bad, always and everywhere. That consensus no longer holds. Now experts feel that capital controls are not only appropriate, but even desirable in certain circumstances, Subbarao said.
The crisis also changed the consensus on foreign exchange intervention. The pre-crisis consensus, at any rate among advanced economies, was that intervention in the forex market is sub-optimal. That consensus no longer holds, with even some advanced economies defending their currencies from the safe haven impact, the governor said.
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