• Whether correction is smooth or volatile is `anybody's guess'
  • RBI governor warned about global financial crisis in 2005

Reserve Bank of India Governor Raghuram Rajan has a message for investors around the world: Get ready for potential declines in asset prices.

That’s because unprecedented easing by global central banks has helped drive up prices, Rajan said in a Bloomberg Television interview Friday at the Kansas City Federal Reserve’s annual symposium in Jackson Hole, Wyoming.

“Those might be the sources of fragility -- that we’ve tried doing too much,” Rajan said. “And as a result, in certain asset markets, prices aren’t correct. And they may correct. Now whether that happens smoothly or that happens in more volatile fashion, I think is anybody’s guess.”

The comments come a decade after Rajan, who at the time was the International Monetary Fund’s chief economist, presented a paper at Jackson Hole that proved prescient in warning that a global financial crisis could be triggered by little-understood financial products. Two years later, that crisis scorched the world economy. More recently, Rajan’s criticism has shifted to the years of unprecedented monetary stimulus by central banks in the world’s richest countries. He’s spoken of the dangers of competitive monetary easing and called for greater coordination among policy makers.

While India is projected to overtake a slowing China as the world’s fastest-growing major economy, it’s shown mixed signals of strength. Falling exports, weak investment and stressed assets in the banking system indicate that the Indian economy is still expanding below its potential.

Rajan said Friday that he sees a “mood of optimism” in India’s economy and that the nation is relatively insulated from a slowdown in China.

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