At least one more US Federal Reserve rate hike is likely this year, with the risk of more increases if inflation remains elevated, according to Rob Subbaraman, Head of Global Macro Research at Nomura. Subbaraman said Nomura's baseline forecast is for one more Fed hike in December, while the latest FOMC projections point to a broadly hawkish policy direction. Of 18 policymakers, 12 expect one more hike this year, four see two more and only two expect no further increase.
The Fed raised its policy rate by 25 basis points last week to 3.75%-4%, with policymakers projecting another increase in 2026.
Subbaraman also expects the RBI to raise interest rates going forward, with Nomura forecasting hikes in both October and December. He said India's growth remains resilient, with Nomura forecasting 7% GDP growth for FY27, but inflation is expected to breach 6% in the coming months.
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Oil, Diplomacy In Focus
Markets are also watching the UN General Assembly in New York and the expected Trump-Xi meeting for signs of diplomatic progress. Subbaraman said markets are hoping diplomacy can ease Middle East tensions and US-China trade restrictions, potentially bringing down energy costs and long-term yields.
He said Iran has some leverage because of the pressure that high energy costs are putting on the US economy. The bigger concern, however, is the impact on downstream oil businesses, with US gasoline prices around $4.50 and diesel prices at record highs near $6.50.
India Could Move Higher Up The Value Chain
On India, Subbaraman said the country could attract more global investment and move higher on the global value-chain chart, particularly through higher-end manufacturing. He sees immense opportunities across sectors, although India could lag if the AI investment narrative remains very strong in the US and Northeast Asia.
Nomura also expects more capital inflows into India, with FCNR-B deposits attracting stronger-than-expected flows and the possibility of a strong balance-of-payments surplus.
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