World economy doing better after Fed cuts, trade progress: Raghuram Rajan

Hopes of a trade deal between the US and China and a series of interest rate cuts by the Federal Reserve are making the world a much better place in the short term, former Reserve Bank of India Governor Raghuram Rajan said.

“The Fed has been very sensitive to a lot of concerns about growth,” Rajan said in an interview to Bloomberg TV’s Haslinda Amin in Singapore. “It has done a series of insurance cuts. That seems to have reassured markets even while they were waiting to see some resolution to the trade imbroglio.”

The Fed last month cut interest rates for a third time this year, citing a combination of trade-policy uncertainty, slowing global growth and below-target inflation. The US and China have been trying to negotiate a limited trade deal, but it may not be clinched until December over indecision on where to sign the deal.

Rajan said there’s some progress on the trade deal, but it will not be a permanent solution and won’t be something that many people want to see.

In some sense “we are in a much better place” than where we were toward the end of last year, said Rajan.

On Europe, Rajan said the European Central Bank has very little room to ease policy further, and it is now for the politicians to revive growth and create more jobs.

Boosting government spending to support growth comes with its own risks given high debt in some countries, Rajan said.

On Brexit, he said that an unprepared exit by the UK from the European Union will not be good.

On speculation that he is a potential successor to Mark Carney as the head of the Bank of England, Rajan said that it was a very difficult job, and central banking jobs were becoming increasingly political. He said the BOE job requires a candidate who understands the domestic political situation.