While there have been positives on the global political front like France electing a liberal as its President and the US administration dialling back from some of the election rhetoric, worries pertaining to China remain, former Reserve Bank of India (RBI) governor Raghuram Rajan said on Friday. Speaking to television channel CNBC in Singapore, Rajan, now a professor of finance at the University of Chicago Booth School of Business, said banks are in a “much safer place”, following the global financial crisis. He explained that while the overall level of risk in the economy hadn’t diminished, if you make banks safer, the risk has to go somewhere else.
Rajan added the US Federal Reserve’s decision to raise interest rates slowly and steadily is quite reasonable. “I think the Fed has said repeatedly that this is going to be a slow and measured process and it is not going to back away from it unless the data change considerably,” he added.
Rajan said there were aspects of the shadow financial system that were now “a little more worrying”, particularly the high default rate on US student loans. Citing Consumer Federation of America analysis of US Department of Education data, CNBC said that the number of people who defaulted on their federal student loans increased 17 per cent from 2015 to 2016. Rajan said risks of such defaults were compounded by hopes that the US Federal Reserve would continue to raise rates. According to Rajan, since the US is getting close to full employment and with skilled labour being hard to find, it is possible to see a turnaround in wage growth.