Uday Kotak predicts central banks to hike rates for longer period

Uday Kotak, Chief Executive Officer of Kotak Mahindra Bank, thinks that interest rates would rise and stay higher for longer as central banks around the world work on future rate hikes.

In a tweet, Kotak said, “Global central bank balance sheets take huge losses as they bought long-term bonds and de facto printed money. Who pays? Sovereign. Signs of sticky inflation in (the) US. More interest rate hikes are likely. And higher for longer. Remember airplane turbulence? Fasten seat belts worldwide."

The Federal Reserve hiked its benchmark interest rate by 25 basis points, or 0.25 percent, on February 1, bringing it to 4.75 percent, signifying the conclusion of the hike cycle.

A similar domino effect was seen with other central banks, as the Reserve Bank of India (RBI) raised its repo rate by 25 basis points, bringing its current repo rate to 6.75 percent.

The RBI is expected to raise interest rates by another 25 basis points in April 2023, according to market analysts.

The Monetary Policy Committee (MPC) announced an increase in the repo rate by 25 basis points to 6.5% on 8 February, as revealed by Governor Shaktikanta Das.

Kotak also believes that global central bank balance sheets are about to suffer massive losses. Kotak stated that if central banks purchased long-term bonds and effectively manufactured money, their balance sheets would reflect massive losses. He also predicted sticky inflation in the United States.

The veteran banker had previously warned India of three concerns in 2023: sticky inflation, Russia's unpredictable moves, and China becoming the undisputed leader.

Earlier, Kotak had spoken about the Adani-Hindenburg crisis, where he mentioned that he does not see systemic risk to the Indian financial system from recent events. He, however, said that large Indian corporates rely more on global sources for debt and equity finance. 

"This creates challenges and vulnerabilities. Time to further strengthen Indian underwriting and capacity building," Kotak, CEO of Kotak Mahindra, said.

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