Former Reserve Bank of India (RBI) governor Raghuram Rajan on Thursday said trade deal between the US and China is the need of the hour to boost global economic confidence.

In an exclusive interaction with CNBC, Rajan said if the tariff issue is not taken off the table, sentiment will remain weak not only in America but across the globe.

Rajan said, "What one hopes is we get a good trade deal soon and that will elevate sentiment. A lot depends on the consumer in the US, the consumer benefits from the low inflation because spending power still is maintained and you hope that if consumption starts coming back towards the second half of this year, investment will start strengthening once again. This is the potential good news that could prevent the Fed from again having to reduce interest rates."

Further, he added, "The Fed is betting that the slowdown will be temporary, that towards the end of the year things will recover, that is the hope and for that, we need good policy. Good policy means, let's get a good trade deal sooner rather than later. What you want is to take the tariff issue off the table, you have to have a deal which does that to increase confidence. If you don't have a deal which essentially says we are not going to get into this war again in the next few months, global confidence will stay low."