If 2022 was marked by aggressive rate hikes by global central banks, the rate hike cycle is beginning to slow this year and many economies are now pausing the rate hike cycle.

In this State of Economy podcast, Mr Indranil Pan, Chief Economist, Yes Bank, speaks with Lokeshwarri S K, Senior Associate Editor about the possible trajectory for Indian and global interest rates. 

Mr Pan thinks that declining inflation and the need to wait for the impact of the rate hikes made over the last year to manifest on the economies, is making central banks of many countries such as India and South Korea pause the rate hike cycle. While growth is going to slow down across economies, he thinks that will not be a concern as central banks want slower growth to dampen inflation. 

 The RBI has also seen a drop in the inflation expectations of households. “If there is ceteris paribus in terms of the evolving risks globally, and the inflation trajectory in India, we do not see any further hike, we also do not see a cut immediately. At best, we see a relatively longer pause,”  says Pan about the outlook for rates in India. 

He thinks that the critical risk for India this year comes more from the capital account. He thinks FDI flows will be impacted by the funding winter for start-ups and there would be very limited appetite for ECBs, given the high-interest rates in the rest of the world. The spreads between 2-year sovereign bond yields between the US and India are also at a multi-year low. So, the rupee is unlikely to appreciate sharply as some people are predicting and there could be volatility in the currency market in the second half of the year. 

Listen in!

(Host: Lokeshwarri S K, Producers: Jayapriyanka J & Nabodita Ganguly)


About the State Of The Economy podcast

India’s economy has been hailed as the bright spot amid the general gloom that seems to have enveloped the rest of the world. But several of its sectors still stutter about even while others seem set to fire on all cylinders. To help you make sense of the bundle of contradictions that the country is, businessline brings you podcasts with experts ranging from finance and marketing to technology and start-ups.