Uday Kotak of Kotak Bank shows THIS wild card as he warns to be ready for turbulence

Uday Kotak of Kotak Mahindra Bank, warns investors should brace for potential global turbulence ahead as the US inflation print has come higher than expected which could delay the US Fed rate cuts.

Livemint, Written By Nishant Kumar
Updated11 Apr 2024, 12:07 PM IST
Uday Kotak of Kotak Mahindra Bank has highlighted that elevated inflation in the US could delay US Fed rate cuts. Photographer: Prakash Singh/Bloomberg
Uday Kotak of Kotak Mahindra Bank has highlighted that elevated inflation in the US could delay US Fed rate cuts. Photographer: Prakash Singh/Bloomberg(Bloomberg)

Uday Kotak, the founder and non-executive director at Kotak Mahindra Bank, warns investors should brace for potential global turbulence ahead as the US inflation print has come higher than expected which could delay the US Fed rate cuts at a time when crude oil prices are rising. Kotak believes a notable decline in China's economy could be the only wild card.

"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," Uday Kotak wrote on X (formerly Twitter).

China's economy has been struggling in the post-COVID world. 

US rating agency Fitch has downgraded China's sovereign credit rating to negative from stable, citing increased risks to its public finances.

The downgrade follows a similar move by Moody's in December. Moody's slapped a downgrade warning on China's credit rating, citing costs to bail out local governments and state firms and control its property crisis.

Also Read: Is China going to default? Fitch cuts rating to negative

Also Read: Will India overtake China to become world's economic heavyweight by 2028?

Meanwhile, the US consumer price index (CPI) rose 0.4 per cent month-on-month (MoM) and 3.5 per cent year-on-year (YoY), above the Street expectations of 0.3 per cent MoM and 3.4 per cent YoY, according to data released by the Labor Department's Bureau of Labor Statistics on Wednesday, April 10.

Core inflation, which the Fed tracks closely, grew 0.4 per cent MoM against the expectations of a 0.3 per cent increase. On a YoY basis, core inflation grew 3.8 per cent while Street expected an increase of 3.7 per cent.

Also Read: US inflation beats Wall Street estimates, rises 0.4% in March; Fed's June rate cut hopes fade away

Most experts now believe there may be no Fed rate cuts in June due to sticky inflation and a resilient US economy. A delayed rate cut is bad news for emerging markets including India as it may trigger fresh foreign capital outflow.

Also Read: US Fed rate cut unlikely in June as US inflation hots up. What this means for Indian investors and what should they do?

"This is the third successive 'hot' CPI print and has completely shaken expectations of both the extent and the timing of rate cuts in 2024. We continue to maintain that the Fed will not cut rates this year, on the back of hotter inflation and slowing-yet-stable growth," said Madhavi Arora, Lead Economist at Emkay Global Financial Services.

Crude oil prices have been rising of late on supply concerns, thanks to rising tensions in West Asia.

"Oil prices settled up $1 on Wednesday after three sons of a Hamas leader were killed in an Israeli airstrike in the Gaza Strip, feeding worries that ceasefire talks might stall," reported Reuters.

Boiling crude oil prices can derail the attempts of global central banks to bring inflation within their target range. An expected rebound in the global manufacturing cycle is also likely to raise inflationary risks.

Also Read: Crude oil prices see a sharp jump; can they sustain gains? How can they impact Indian stock market sentiment?

Experts warn that central banks face a tightrope walk in balancing growth and inflation. Investors are discounting the possibility of only two rate cuts this year, compared to the six rate cuts expected at the beginning of the year and three rate cut expectations in March.

Global market sentiment may potentially deteriorate further if expectations of US Fed rate cuts further weaken.

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.

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First Published:11 Apr 2024, 12:07 PM IST
HomeEconomyUday Kotak of Kotak Bank shows THIS wild card as he warns to be ready for turbulence

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