Veteran banker Uday Kotak on Thursday forecast interest rates could stay at higher levels for a prolonged period and advised industry to brace for a period of global turbulence.
His comments came a day after US inflation surprised on the upside, thereby dampening hopes of an interest rate cut by the Federal Reserve in June.
The US consumer price index (CPI) rose to 3.5 per cent in March from 3.2 per cent in February. Economists polled by Reuters had estimated it to come at 3.4 per cent. The bad news led to the Dow Jones Industrial Average crashing more than 422 points even as US treasury yields and the dollar jumped.
It has raised the possibility of the Reserve Bank of India cutting rates before the Fed. RBI governor Shaktikanta Das has repeatedly averred that the decisions of the Indian central bank is not in any way influenced by the Fed.
India’s central bank has projected inflation rate to reach the target of 4 per cent by the second quarter of the fiscal — which makes the condition ripe for a rate cut even before the Fed, economists said.
Earlier, the US Fed had guided for three cuts this year.
The red hot inflation numbers in the US will mean the return of the “higher for longer’’ which in other words means that interest rates will stay elevated for a longer period.
Kotak, the founder, and non-executive director of Kotak Mahindra Bank, fears the same even as he flagged another risk in rising crude prices that could postpone interest rate cuts in countries such as India.
“US inflation is higher than expected. Postpones US rate cuts to later, closer to US Presidential elections, if at all,” Kotak said on micro blogging platform X (previously Twitter).
“Brent oil now $90. Will keep rates higher for longer worldwide including India. Only wild card: China imploding economically. Get ready for global turbulence.’’
Kotak’s comments come nearly a week after the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) held the policy repo rate for the seventh successive time at 6.50 per cent.
The RBI has forecast inflation for fiscal 2024-25 at 4.5 per cent: 4.9 per cent in Q1, 3.8 per cent in Q2, 4.6 per cent and 4.5 per cent in Q3 and Q4, respectively.
