Nomura Sees Higher Interest Rates as New Normal for Global Economy

Nomura's Robert Subbaraman predicts that interest rates will be higher for longer, echoing the 1980s and 1990s rather than the low-rate decades of the past two decades. He expects the Reserve Bank of India (RBI) to raise rates twice more this year.

The key reasons for higher interest rates globally are sticky inflation from energy costs, AI-linked electricity and chip demand, a US fiscal deficit near 6% of GDP, and public debt around $40 trillion. These factors will likely lead to further rate hikes by the Federal Reserve.

Subbaraman notes that exchange rate regimes are now more flexible, and central banks, including the RBI, have raised rates and improved fiscal positions compared with advanced economies. He also credits India's FCNR deposit scheme for rebuilding foreign exchange reserves.