India To See ‘Super Low’ Interest Rates For Next Two-Three Years: AB Sun Life AMC’s Maneesh Dangi
At a time most large central banks are resolved to keep interest rates near zero, India, too, is likely to see extremely low rates for the next few years despite inflationary pressures, according to Maneesh Dangi.
The Reserve Bank of India is cognizant of the rising food inflation, the chief investment officer for fixed income at Aditya Birla Sun Life Asset Management Co., which managed Rs 2.14 lakh crore assets as of June, told BloombergQuint in an interview. “It is necessary to have some food inflation because for far too long our farm economy was in distress and in some sense this will act as a stimulus for the sector.”
Retail inflation in India as measured by the Consumer Price Index stood at 6.69% in August compared with a revised estimate of 6.73% in July. It remained above the RBI Monetary Policy Committee’s target of 4 (+/-2)% for the fifth straight month. Wholesale inflation, too, inched up for the first time since March.
But Dangi is not too worried. The rise in food prices has largely been caused by supply-side disruptions amid the coronavirus pandemic, a phenomenon which will likely subside.
The Monetary Policy Committee is set to meet for its bi-monthly meeting between Sept. 29 and Oct. 1. After lowering the rates by 115 points since the virus hit, the committee in its last meeting maintained a status quo.
Still, India’s expected spell of low interest rates is relatively lower than what Dangi expects from global central bankers. The combination of the Covid-19 crisis, historical reactions to economic disruptions and U.S. Federal Reserve Chairman Jerome Powell’s commentary prompted Dangi to say that global interest rates will remain near zero for close to a decade.
“Remember that after the global financial crisis, which was relatively a minor crisis, interest rates remained near zero for six years. In this case, I would imagine interest rates could stay lower for even longer,” he said. He expects central bankers to do so even if inflation runs “red hot” periodically.
Low interest rates both globally and locally, however, will have its set of ramifications, according to Dangi. While it will mean more liquidity and risk-taking, it also means those dependent on returns from fixed deposits will lose out.
It’s good news for the economy and everyone in general but if you’re looking at the much narrower view of a saver, is there going to get a lot of returns from a fixed deposit? The answer is no.Maneesh Dangi, CIO - Fixed Income, Aditya Birla Sun Life AMC
Dangi suggests such investors would be better off investing their savings into a fixed income fund. While they are also unlikely to perform as well as they have in the past few years, he expects bankers will further lower the fixed deposit rates since lenders, sitting on surplus liquidity, will have little to no incentive to borrow money from customers.
Watch the full conversation here: