Uday Kotak Warns Of Prolonged Global Interest Rate Hikes, Impacts On India
Uday Kotak said the recent surge in US inflation and escalating oil prices, alongside the US Federal Reserve's decision to postpone rate cuts, as factors that could reverberate globally
Uday Kotak, the founder and non-executive director at Kotak Mahindra Bank, issued a cautionary note regarding the potential for extended higher interest rates worldwide, including in India. In a statement shared on social media platform X, Kotak said the recent surge in US inflation and escalating oil prices, alongside the US Federal Reserve's decision to postpone rate cuts, as factors that could reverberate globally. His warning resonated with concerns about the economic situation in China, suggesting that a potential economic implosion could contribute to global turbulence.
US inflation
This alert from Kotak comes in the wake of the latest US inflation data released on April 10, revealing sustained consumer price increases driven primarily by rising gas prices, rents, and car insurance. The report indicated a 0.4 per cent increase in core prices from February to March and a year-over-year rise of 3.8 per cent, marking the third consecutive month of inflation readings surpassing the Fed’s 2 per cent target.
US inflation is higher than expected. Postpones US rate cuts to later, closer to US Presidential elections, if at all. Brent oil now $90. Will keep rates higher for longer worldwide including India. Only wild card: China imploding economically. Get ready for global turbulence.
— Uday Kotak (@udaykotak) April 11, 2024
US Fed policy
The unexpected rise in inflation poses a dilemma for the Federal Reserve, as policymakers weigh the timing and extent of potential interest rate adjustments. Despite earlier expectations of multiple rate cuts in 2024, recent signals from Fed officials suggest a reluctance to quickly alter the benchmark rate, citing the resilient state of the economy.
March projections by Fed policymakers, anticipating three rate cuts for 2024, have faced skepticism, with an increasing number forecasting fewer reductions. Some economists anticipate a rate cut by June or July, although uncertainties persist. The economic landscape is further complicated by soaring oil prices, with Brent futures exceeding $90 and West Texas Intermediate hovering near $86 following a 1.1 per cent surge on April 10.
Rising oil prices
Geopolitical tensions and OPEC+ supply cuts have driven oil prices up by about 17 per cent this year. However, challenges such as growing US crude stockpiles and the recent uptick in US inflation present significant hurdles, potentially delaying US Federal cuts.
RBI MPC
In its latest policy announcement in April, the Reserve Bank of India (RBI) maintained the status quo, keeping the repo rate at 6.5 per cent. The central bank anticipates headline inflation to drop to 4.5 per cent in FY25, raising the possibility of rate cuts in subsequent policies.
China inflation
Meanwhile, China saw a more significant than expected cooling of consumer inflation in March, while producer price deflation persisted, maintaining pressure on policymakers to implement more stimulus measures as demand remains weak.
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