This is just the beginning, three times the repo rate may still be dosed
The Reserve Bank of India was expected to raise interest rates on the back of an interest rate hike by the Federal Reserve and the possibility of one more Fed rate hike in the next meeting, and that prediction proved to be true. As the economic growth rate of the country has been high for some time now, inflation was also seen increasing along with it, which increased the concern and it became mandatory for the Reserve Bank to increase the interest rate. If inflation remains high in India too, there may be another interest rate hike in the December meeting.
Meanwhile, higher crude oil prices due to tensions in the Middle East will continue to increase India's import bill and increase inflation, which may result in interest rate hikes. High crude oil prices are not the main reason for the rise in inflation, but the effect of El Nino will be the main reason. This can have a major impact on the rural economy. The effect will be long lasting. RBI is likely to hike interest rates three more times by June. However, India will continue to achieve an economic growth rate of around 7 percent.
El Niño as a threat to 2027 El Niño, which many financial market participants have not yet fully factored in, is a much greater risk for 2027 than for 2023.
Regarding El Nino, Goldman Sachs expert Sengupta said that the impact of El Nino on Kharif crop will be very less. At the same time, he believes that current inventory levels will help curb inflationary pressures in the near future.
Thus, El Nino is a risk whose impact will be more visible later. Decreasing water level in reservoirs can damage rabi crops. Moreover, low stock levels by 2027 could further increase inflation. El Niño in 2027 could adversely affect economic growth and increase inflation.
On the other hand, while the tensions in the Middle East are not in sight, crude oil prices continue to rise. If crude oil prices remain below $100 per barrel, the economic loss to India will be limited, manageable, but if crude oil prices remain above $100, India's economic growth and inflation will be a major hindrance.
Many brokerage firms say that crude oil prices may remain high till December. The reason for this is that there is tension between America and Iran. Ships passing through the Strait of Hormuz fear attack. Production in the Gulf of Mexico is being hampered. Due to which the supply is affected.
Regarding the increase in the repo rate, an economist at Goldman Sachs said that the RBI can still increase the interest rate three times till the month of June. Thus, the interest rate may increase up to one percent by the coming June.
Earnings growth will be moderate this year. Foreign investment flows have been weak. Foreign investors are pulling money out of India and looking for AI-related opportunities in countries like the US, China, South Korea and Taiwan. The world is moving towards AI. The challenges we are facing at the moment are mainly external.
