CHART OF THE WEEK 📈
What is Happening? 🤷♂️
2022 was the year of the rate hikes. After years of low-interest rates, most countries switched gears to a contractionary monetary policy, which basically aims at cooling down the economy. This was a concerted effort by countries globally, done to stop wildfire inflation.
Unfortunately, there can be consequences. An overly aggressive or excessive interest rate hike can stunt economic growth and even push a nation into a recession by cooling down demand too rapidly.
With the quantum and pace of rate hikes being the highest in decades, most of the West is now eyeing a massive drop in growth in 2023, with increased fears of a recession.
How is India Different?
Despite significant rate hikes in 2022, standing at par against developed nations, India’s growth prospects for 2023 are among the highest in the world at 6.1% Real GDP Growth, (according to the IMF).
This suggests that the underlying economic fundamentals of the country are stronger than that of its peers and that the economy is able to withstand the negative effects of higher borrowing costs.
This could be attributed to a few factors:
Strong domestic demand
Relatively low debt-to-GDP ratio
Stable government policies
Structural growth factors
Movement of manufacturing into India
Expansionary fiscal policy
In Closing 🚪
Given these factors, it's reasonable to expect Indian markets to outperform their worldwide counterparts. With inflation now below 6%, it appears that this rate-hiking cycle may soon be winding down.
As the Reserve Bank of India (RBI) convenes for its February monetary policy review, a further quarter-point rate hike is expected. However, a pause on future rate increases might just be sooner for India, compared to other global economies.