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Mon 1 Oct 2018 11:19 AM

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Hard to predict Indian rupee fall, says former RBI governor

Former RBI governor Raghuram Rajan said that while there are 'pockets of stress', it remains unclear whether they will eventually lead to another financial crisis

Hard to predict Indian rupee fall, says former RBI governor
Raghuram Rajan, the former governor of the Reserve Bank of India – who famously predicted the 2008 economic crisis in a 2005 paper – said that there continue to be “places of risk”.

It is nearly impossible to predict the near-term future of the Indian rupee’s exchange rate, according to Raghuram Rajan, the former governor of the Reserve Bank of India.

Responding to a question from Arabian Business at Mastercard’s “Connecting Tomorrow” event in Barcelona, Rajan responded that he “doesn’t know” and adding that he believes “economists have nothing useful to say about the exchange rate”.

“But, if you look the history of the rupee, it is usually flat for a long time, then falls, then is flat, then falls,” he said. “You have to ask yourself whether it’s fallen enough to be flat for a long time.”

Additionally, Rajan – who famously predicted the 2008 economic crisis in a 2005 paper – said that there continue to be “places of risk”.

“I can’t tell you all is well. We have leverage that has picked up across the financial system since the crisis. You’ve had 10 years of very easy monetary policy,” he said.

“Interest rates are going up, and with a lot of leverage in the system, there will be pockets of stress.

“Whether those pockets of stress coagulate into something bigger and messier, and [whether that becomes] a great financial crisis, is anybody’s guess.

“I don’t think anybody can say for sure. But it’s not the same place [as 2008]. I can tell you the banks are a lot safer now, but the non-banks is where the risks have gone,” he added.