Fight the coronavirus first, then worry about the stimulus: Raghuram Rajan

NEW DELHI: The best economic tonic for shock is to contain its spread and worry about the subsequent stimulus, said the former head of the Reserve Bank of India (RBI).

There is little that central banks can do, and although it would help more government spending, the priority should be to convince businesses and households that the virus is under control, he said.

People want to have the feeling that there is a limit to the spread of this virus, perhaps due to containment measures or because there is hope that some kind of viral solution can be found, Rajan told Haidi Stroud Watts and Shery Ahn from Bloomberg Television.

At this point, I would say that the best thing governments can do is really fight the epidemic instead of worrying about the stimulus measures that come later, said Rajan, who is currently a professor at the Chicago Booth School of Business.

The spread of the coronavirus is pushing the world economy towards its worst performance since the financial crisis more than a decade ago.

Bank of America Corp economists warned customers on Thursday that they now expect global growth of 2.8% this year, the weakest since 2009.

We have moved from extreme market confidence to extreme panic, all in the space of a week, said Rajan, who was previously chief economist at the International Monetary Fund.

The virus outbreak will force companies to rethink supply chains and overseas production facilities, he said.

I think we will see a lot of rethinking about this, after the trade disruption, now we have this, Rajan said. Globalization in production will be greatly affected.