No Guarantee That India Is Heading For A Low Interest Rate Regime

The US Fed may hike interest rate but the impact on India will be minimal, says Harvard University’s Gita Gopinath.

The RBI headquarters in Mumbai. This image is for representational purposes. (Photo: Reuters)

Commodity prices and the monsoon will play a key role in determining a low-inflation, low interest rate environment in India, a panel of experts unanimously agreed at the India Economic Summit 2016 hosted by the World Economic Forum.

In a panel moderated by Bloomberg’s Harsha Subramaniam, Gita Gopinath, Professor of Economics at Harvard University, said there is no guarantee that India is headed for a low interest rate regime.

With most global central banks adopting an accommodative monetary policy, the global economy will be flush with liquidity in the times to come. India can emerge as a beneficiary in this scenario as liquidity spurs the demand for safe assets, Gopinath added.

The US Federal Reserve may hike interest rate by the end of the year but the impact on India will be minimal when that happens, she maintained.

There is no reason to think that there is a clear downward trajectory in interest rates. There is a huge demand for safe assets in the world. If India can announce itself as a safe asset, that will ensure that the country has minimal impact of a Fed rate hike.

Gita Gopinath, Professor of Economics, Harvard University

Read the full report on BloombergQuint.