Nithin Kamath, the founder and CEO of Zerodha, said that India faces potential interest-rate hikes from the Reserve Bank of India (RBI) [1].
These warnings highlight a precarious economic outlook where geopolitical tensions and climate volatility could converge to destabilize domestic prices and monetary policy.
Kamath said several compounding factors may drive food inflation higher. A weak monsoon is expected to reduce agricultural harvests, which typically leads to a surge in food prices [1, 2]. This vulnerability is further exacerbated by El Niño patterns, which often disrupt traditional rainfall cycles and impact crop yields across the region [2].
Beyond domestic climate concerns, Kamath said international conflict is a significant risk factor. The ongoing U.S.-Iran war has contributed to high oil prices, which increases the cost of transport and production within India [1, 3]. Because India imports a vast majority of its petroleum, these global price shocks directly fuel domestic inflation [1].
If these inflationary pressures persist, the RBI may be forced to intervene to stabilize the economy. Kamath said that potential interest-rate hikes could occur by 2026 [1]. Such a move by the central bank would be intended to curb inflation but could also increase borrowing costs for businesses and consumers.
The combination of high energy costs and failing crops creates a scenario where the cost of living rises sharply. Kamath said the outlook is a "terrible year ahead" based on these intersecting risks [1, 3].
“Potential interest-rate hikes could occur by 2026”
The intersection of geopolitical instability and climate change creates a 'perfect storm' for emerging markets like India. When energy costs rise due to conflict and food supplies drop due to weather, the central bank is often forced to raise rates to protect the currency and stop inflation, even if those higher rates slow down overall economic growth.
