Get ready for global turbulence: Uday Kotak

Veteran banker and Kotak Mahindra Bank founder Uday Kotak on Thursday said that countries should get ready for global turbulence as higher-than-expected U.S. inflation will keep interest rates up for longer period.

"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," Kotak says in a post on X.

The Reserve Bank of India's monetary policy committee kept the repo rate unchanged at 6.5% for the seventh time in a row in April.

These comments come even as India's inflation eased to 5.1% during January and February 2024 from 5.7% in December 2023. Food inflation pressures, however, accentuated in February. Food price uncertainties continue to weigh on the inflation trajectory going forward, RBI governor Shaktikanta Das warned earlier this month. “The tight demand supply situation in certain categories of pulses and the production outcomes of key vegetables warrant close monitoring, given the forecast of above normal temperatures in the coming months,” he said.

The RBI governor, however, said that inflation - the elephant in the room - has now gone out for a walk and appears to be returning to the forest.

“Two years ago, around this time, when CPI inflation had peaked at 7.8% in April 2022, the elephant in the room was inflation. The elephant has now gone out for a walk and appears to be returning to the forest,” Das said while announcing the monetary policy statement.

“We would like the elephant to return to the forest and remain there on a durable basis. In other words, it is essential, in the best interest of the economy, that CPI inflation continues to moderate and aligns to the target on a durable basis,” Das says, adding that the central bank’s task remains unfinished till this is achieved.

“Cost push pressures faced by firms are seeing an upward bias after a period of sustained moderation. Deflation in fuel is likely to deepen in the near term, following the cut in LPG prices in March. Notwithstanding the cut in petrol and diesel prices in mid-March, the recent uptick in crude oil prices needs to be closely monitored,” said Das.

Crude oil prices have seen an uptick recently amid geopolitical tensions in West Asia. Brent, the international crude oil benchmark, crossed the $90 per barrel mark owing to rising tensions in the Middle East.

Continuing geo-political tensions also pose upside risk to commodity prices and supply chains. Assuming a normal monsoon, CPI inflation for 2024-25 is projected at 4.5% with Q1 at 4.9%, Q2 at 3.8%, Q3 at 4.6% and Q4 at 4.5%, said the RBI governor.