Budget 2022| Its conservatism is encouraging, oil prices and rate-hike worries should pass: Aletheia Capital’s Jim Walker

Aletheia Capital's Jim Walker said that the Fed is full of economists, and that thinking that these economists are in touch with the market is being kind to them. (Illustration by Suneesh Kalarickal)

Oil prices could drop by half by the end of the year and global rate-hike worries could be exaggerated, said Jim Walker. 

The chief economist of Aletheia Capital, which focuses on the Asia Pacific region, was talking to Moneycontrol in a post-Budget panel discussion. 

He said that he was encouraged by the Budget’s conservative stance on the GDP growth numbers. “The government is taking a pretty cautious approach, not because I think it wants eventually to be able to write back in a very good performance during the course of 2022. But actually because there are some real concerns about the global economy,” he said.

“The external environment is much worse than what the IMF is trying to portray. Therefore, it is a very sensible approach by the Indian government, in thinking that the growth might not be as strong as it would like it to be given the external environment,” he said.

That said, Walker added that there are various things going in India’s favour such as the financial-sector clean up and consolidation of public-sector banks. 

Oil and rate worries

While the Economic Survey has assumed crude-oil prices at $70-75/barrel, oil prices are currently at $90 and there are predictions that it could go up to $120/barrel in 2022. Such a price escalation could upset the Budget math considerably.

But Walker said that the oil prices could turn sharply the other way and suggested that the predictions should be taken with a bag of salt.

“If I was putting a bet on it (crude oil prices), I think it would be half of the present $90/barrel by the end of the year,” he said.

Also, oil forecasts are notoriously difficult to get right. 

“I used to be an oil analyst when I worked for the Royal Bank of Scotland back in the eighties. And every year, we had to bring out oil-price forecasts. I don't think I got the direction right even once, let alone get the forecast right once. That’s a big problem with oil in particular, but people look at trends in the short term and they make the forecasts on the basis of the recent trend. And it's nearly always wrong,” he said.

On Fed interest rate hikes, Walker said that the rate hikes being talked about are so “ridiculous” in their magnitude that the markets and the global economy seemed to be overreacting. 

He started with a scathing remark on the Fed’s disconnect with the market. “The Fed is full of economists. If you think they are in tune with the markets, then I think you are being very kind to them.”

Then he went on to explain why the interest-hike worries seem overblown.

“The Fed is talking about three, four, maybe even five interest rate rises this year. That would take us to 1.25% in the US. But when I was growing up, that wasn't even an interest rate. You would get more than that in the deposit account in the savings bank in Scotland. So, what we're talking about here is so ridiculous that the whole world has been transformed into this new interest rate world, except for places such as China, India and some of the other emerging markets where interest rates are actually still sensible. But, in the United States, markets get absolutely excited by the prospect of even a 1% hike in interest rate… if they’re worried about 1%, then anything can happen in the next 12 months,” he said.