Davos 2025: 'You may see interest rates rising again in US', says Axis Bank CEO Amitabh Chaudhry
Axis Bank CEO and managing director Amitabh Chaudhry on Tuesday noted that though the US Federal Reserve was trying to slash interest rates in the near future, the rates may go up fast following Donald Trump taking over as the 47th US president.
Talking to Business Today, Chaudhry said: “Fed was on a path to reduce interest rates. But if you watch what Donald Trump is saying as he resumes office and what he intends to do with higher trade tariffs, where the fiscal deficit is going, I think the runway to reduce interest rates is reducing sharply. You might see them or perhaps they would be forced to increase the interest rates because the fiscal deficit keeps rising. So investors will demand a higher price.”
He added Europe is also a difficult proposition, besides having problems like growth, immigration and others.
For India, Chaudhry said the government has done a great job by collaborating with other nations and also showcased itself as a country that others needed by their side.
“For India, I am hopeful that things will ease with some time from now. The biggest macro which will keep going in and out as Trump will be very active in the next 12-18 months. So every time some action will be taken in the US, it will have a ripple effect globally, including India. While India may have a great growth story, there could be volatility in the market that may create some problem.”
The US central bank reduced interest rates on December 19, 2024. However, Federal Reserve Chair Jerome Powell stated that additional cuts in borrowing costs would depend on continued progress in addressing persistently high inflation. Powell’s comments indicated that policymakers were beginning to consider the potential implications of significant economic changes under a Trump administration.
Powell’s clear warnings about the need for caution moving forward had a significant impact on financial markets. This caused stock prices to drop, bond yields to rise, and led investors to adjust their expectations regarding future interest rate cuts.
In an effort to address rising inflation levels, the Fed implemented a series of interest rate hikes in 2022 and 2023. The easing cycle began in September 2024 with a 0.5% reduction in borrowing costs, followed by a 0.25% cut the following month.
The Reserve Bank of India (RBI) appears to have eased its grip on the rupee, leading to its decline against the US dollar in the past month.
This change in approach signifies a departure from the RBI’s previous strict measures, which aimed to stabilize the rupee’s value. Up until about a month ago, the RBI had closely monitored and controlled the rupee’s movement to prevent significant depreciation since September 2024.
Talking out the depreciating Rupee, Chaudhry said the worst is over. “Over the last month or so RBI has eased its grip on Rupee and that’s why it has fallen sharply. Hopefully, we will now see it stabilising… From here, I feel the Rupee will deprecate slowly. But again it is difficult to predict.”
After remaining in the 84-85 range for a prolonged period, the Rupee experienced its most substantial single-day drop in almost two years on January 13, closing 66 paise lower at a record low of 86.70 against the US dollar. Since November 1, 2024, the rupee has depreciated by 2.6%.
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