Ray Dalio, the founder of the world’s biggest hedge fund Bridgewater Associates, finds great potential in India. Dalio says he uses various indicators and believes India should have the highest growth rate going ahead.
In an interview with Business Today TV’s Udayan Mukherjee, Dalio said India was opening up to the global capital markets and if that continued, it would be good for the capital market in India, in terms of capital flows.
Dalio said India was largely taking a neutral position in the ongoing global conflicts, which was good. “We use indicators of the next 10 years growth rate. Some of the indicators include the cost of an educated person. In other words, not only the education level, but also how expensive it is. Others include barriers to trade and capital flows and the level of corruption. On balance, India should have the highest growth rate of any country,” Dalio said.
Dalio also touched on a number of other issues, including inflation and interest rate hikes, during the interaction.
Inflation
Dalio said inflation peaking would depend on three factors with the first being creation of debt. Besides, he pointed out two other factors that were “disruptive and related.”
“And those other two factors are a great internal conflict due to large wealth differences, that is producing populism of the left and populism of the right, which are at war with each other. We could see that particularly in the United States. How do you deal with those money issues? They’re not just money issues, but ballot politics,” he said.
The third factor, he said, was the great power conflict internationally.
“No longer is the United States, the sole dominant power. So, we have a great rivalry between China and the United States. And that is having economically disruptive effects. It makes the supply chains more difficult and so on. And that is adding to the inflation. And of course, it creates other worries as well. So, it’s the interaction of those three things that is determining it,” he said.
Interest rate
Dalio suggested interest rate curve would depend on what the Fed’s looking to do. “I think we’re going to have an inflation rate that is probably in the vicinity of 5 per cent-ish. But it’s a very uncertain inflation rate because of all the shocks that we have around it. But let’s say 4.5-5 per cent is probably what it settles down at after this tightening. The real rate, in other words, the rate above inflation that the interest rate is now at is in the vicinity of 1.5 per cent, a little bit higher than that. So that would mean they would be probably approaching a 6 per cent, risk-free rate,” Dalio said.
The Federal Reserve would put the short-term rate up towards that level, Dalio said, adding the level of interest rate was harmful and damaging to the economy.
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