Co-founder of global investment bank Kohlberg Kravis Roberts (KKR) Henry R. Kravis said there was nothing new with governments trying to ‘jawbone’ central banks.
“I laugh when I see your [Indian] government here putting the pressure on the RBI, we have exactly the same issue with the U.S.,” said Mr. Kravis, co-chairman and co-CEO, KKR, who batted for autonomy of the central banks.
Trump vs Powell
“Right now, [U.S. President] Trump is yelling and screaming that ‘I don’t like Jerome Powell, he is a terrible choice for the central bank’ because he’s raising rates and the markets [are] going down a little bit and he’s in a panic over this. This has been historical and there’s nothing new with governments trying to jawbone the central banks.” On autonomy for the central banks, Mr. Kravis said: “central banks in most countries are independent and have to be independent.
“They have to be able to do what is the right thing in their view for continued economic growth, to slow down inflation. So the RBI is no different in my view, they should be independent.”
Mr. Kravis advocated the concept of ‘bad banks’ for India.
“You can’t pretend that everything’s fine. That’s a mistake in my view. Take that call, to clean out the bad loans and you really have to do a very good asset quality stress test. I would encourage the banks to do that here. I would encourage the government to do that here because the drip test of putting back again good money after bad money, it never pays and you are just compounding your issues. So, I would encourage you to take the tough medicine.”
Asked if KKR would change its investment strategy in India when institutional independence was being undermined by the government, Mr. Kravis said, “Yes, if all of a sudden they [government] wake up tomorrow and say we’re just going to close the spigot, no capital going out, which happened in the U.S. in 1979. I don’t see that here.
“Today’s excitement is about the new RBI Governor. Tomorrow it will be just news,” he said.