RBI behind US Fed, other central banks in raising rates to tackle inflation: Geosphere Capital

Rising costs, fuel prices, have continued to spook markets as inflation remains a major concern across geographies. Fed Chair Jerome Powell recently signalled a possibility of 50 basis points (bps) rate hike in the meeting to be held in May. His aggressive hawkish stance indicates that he is resolute when it comes to tackling inflation.

In an interview with CNBC-TV18, Arvind Sanger, Managing Partner, Geosphere Capital Management, said that inflation will prove to be sticky and the Reserve Bank of India (RBI) is behind the curve when it comes to raising rates.

“I think inflation is going to prove to be stickier. And as I have said before, RBI is way behind the curve in terms of having to raise rates. So they are going to be raising rates and global inflation is already high, but the risk of global recession is high," he said.

"So the reality is that India does well in a rising rate environment when global growth is good, but in a rising rate environment where there is a risk of recession, almost no market does well and so I don't think India is going to prove to be an exception. So people have to be careful about that element that this is different from a normal rate hike cycle where growth is good and Fed and other central banks are raising interest rates just to keep up with growth. Right now, they are raising interest rates to kill growth and that is the part that I think is a little more cautious,” said Sanger.

He explained that the Federal Reserve is doing what it had promised- it’s going after inflation in an aggressive way. It is clear that the US Fed is willing to risk a recession in the US if that’s what it takes to tame inflation, shared Sanger.

He said, “The incremental news was that they might keep be doing 50 bps till the economy significantly slows down to bring long-term inflation down to 2 percent. So the market was hopeful that they might be a little more willing to accept slightly higher inflation, but it's clear the Fed is willing to risk recession if that's what it takes to defeat inflation.”

Amid the volatile highs and lows that is currently gripping India’s benchmark headline indices, Sanger believes the best sector to remain invested in is commodities, especially the energy-related plays. He warned that the commodities cycle is likely to have stickiness.