India may be in final phase of interest rate hikes, says Dron Capital Advisors

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Pathik Gandotra, Partner at Dron Capital Advisors, believes interest rates have peaked across the world and India may be in the final leg of its rate hike cycle.

He predicts that inflation will continue to decrease gradually, which will provide the central banks with enough assurance to hold interest rates at current levels. Yields have reached their highest point and will remain stable for an extended period, rather than experiencing any further declines, according to him.

"We had anticipated a pause in interest rate hikes, not in this policy meeting, but perhaps in the next. However, taking a longer-term perspective, interest rates appear to have peaked worldwide. This is due to the impact of the SVB collapse, which made the US realise that the significant interest rate hike it had implemented was having adverse effects on the economy. It takes time for these effects to become evident, and this was a shock to everyone," Prathik Gandotra said.

Gandotra was speaking with Nandita Khemka and N Mahalaxmi on Thursday post RBI policy.

Gandotra said that a cool-off in oil prices in recent times indicated that inflation had begun easing globally, despite the ongoing war. Crude oil prices declined nearly 10 percent over the last few sessions but rebounded after surprise production cut by OPEC+.

"In my opinion, this situation was bound to happen, whether in this or the next policy meeting, so the reaction has been positive but not overly so. The main concern is the effect of high bond prices and interest rates on economies globally. Central bankers are aware of this and the fact that inflation is decreasing at different rates in different countries," Gandotra said.

The RBI, on April 6, decided to keep the repo rate unchanged, considering the chaos caused by the global banking crisis and amid fears of a contagion effect. The central bank maintained its 'withdrawal of accommodation' stance, however, it also emphasized its preparedness to act, if necessary.

RBI also revised its inflation projections, estimating that the Consumer Price Index (CPI) will average 5.2 percent in FY24, which is a slight improvement from the earlier estimate of 5.3 percent. The RBI highlighted the economy's resilience and projected that the Gross Domestic Product (GDP) for FY24 will grow at a rate of 6.5 percent, which is slightly higher than the earlier estimate of 6.4 percent.