US in stagflationary shock, India remains outlier, says BofA's Claudio Irigoyen

While Irigoyen expects the US Federal Reserve to refrain from cutting rates as it tackles lower growth and higher inflation, he says other central banks are likely to cut rates as they face lower growth and lower inflation. The market was earlier expecting five rate cuts from the US Fed this year, but has lowered its expectation to two.  

Also read: ‘Why did you invite Modi for G7 Summit?': Canadian PM Carney replies, ‘India should be…’

“We call it a slowdown but not a recession (for US). So those are the two biggest out-of-consensus calls we've had," said Irigoyen. “The Fed will not cut, and the US economy will slow down but will not enter into a recession." 

Irigoyen’s team has lowered the global growth estimate to 2.8% for 2025 from 3.1% earlier. BofA expect India’s gross domestic product (GDP) to grow 6.3% and Europe’s 0.9%. According to Irigoyen, Indian’s central bank will pause after delivering a surprise 50-basis-point rate cut and a 100-basis-point reduction in the cash reserve ratio (CRR) last week. 

“We have been calling for RBI to cut rates by 100bps for some time, and with that rate trajectory achieved, we believe RBI can now wait and see the transmission, especially since they have changed their policy stance to neutral," he said. “Naturally, given RBI’s pro-growth stance, the risk will be for RBI to ease rates further, but given their current growth projections, we believe RBI will be patient and wait to see if GDP growth deteriorates from here to gauge whether more easing is needed or not." 

While Irigoyen remains sanguine about India’s growth story, he believes that it will need to build more infrastructure to attract supply chains.  

Also read: Russian intelligence document calls China ‘the enemy’, leak exposes Moscow’s deep fear

“India could be a relatively good story because it's relatively neutral from a geopolitical standpoint, or trying to be, and could be a point of attraction of FDI and relocation of supply chains, but this is going to take some time," he said. “India needs to do the shore-up in terms of building more infrastructure to attract supply chains."

BofA also expects the dollar to continue weakening, albeit not sharply. “We do not see any short-term risk for the dollar to lose its reserve currency status," Irigoyen said.  

Irigoyen, however, expects global portfolios to continue rebalancing away from US assets into Europe and emerging markets, unwinding the overweight exposure to US assets into more neutral portfolios. 

“As the geopolitical landscape around the world is changing, some countries are less inclined from a geopolitical perspective to buy US treasuries," he said. “Central banks are moving away from US treasuries to gold. So while there is less demand, there is higher supply of treasuries because of the deficit." 

Also read: Will America's unbalanced trade doom the dollar?

Irigoyen also said that all eyes are currently on the tax bill that is expected to be passed by the US Congress on 4 July. The legislation is expected to cut taxes by $3.7 trillion, while also increasing deficits by $2.4 trillion over the next decade.