Robust economy, bank reforms outdo rupee concerns: JP Morgan CEO

Jamie Dimon, CEO of JP Morgan, feels that reforms are tough across all the countries that have embedded politics and systems. A country having state-owned banks should be very careful.

India’s robust economic growth and key reforms by the government such as the goods and services tax (GST) and mergers in public sector banks are some of the key advantages that overshadow the concerns arising from the macroeconomic concerns and sliding rupee, JP Morgan chief executive officer Jamie Dimon said in an interview with The Economic Times.

Four key takeaways from the interview

1. US rate hike and its impact on Indian economy and the rupee

Dimon thinks that there's 10-15 per cent probability of key lending rates in the US hitting 4 per cent, but the future curve embeds a 3 per cent possibility, which is unlikely. "People have to look at what could increase the probabilities and these are the reversal of QE and greater inflation that people expect. But the important thing is we have good growth, jobs and I don’t think we are building a house of cards."

Indian economy is currently worth $2.5 trillion and it is on its way to $5 trillion. It has been growing steadily and some of the government's new policies such as GST and ease of doing business are promising signs. If the rupee falls, it tends to cause problems to the country's oil imports, but the economy can do fine if US interest rates rise. The US growth will benefit India as opposed to a US recession, which will hurt India's economy more than a rising US dollar.

2. Reforms in the banking sector by the government

Dimon feels that reforms are tough across all the countries that have embedded politics and systems. A country having state-owned banks should be very careful about them being run for political purposes.

"Credit given out for political purposes almost always goes bad. It is one of the great lessons of history. We all make mistakes but it is important to reform banking systems." he said commending Narendra Modi "You have a very strong and smart prime minister. He is strong enough politically to take the actions that India needs, which is hard to do. If India wants to reach its potential, those actions need to be taken."

3. US 10-year treasury seen rising up to 5%, and its impact

Dimon believes that the probability of 10-year treasury going to 4% or 5% is higher than people are expecting. It is not necessarily bad if the global economy is healthy.

"That’s just a return to normalisation. However, if there is higher inflation in the US and the Fed has to raise short-term rates quicker in order to slow the economy down, that’s a different thing," he said.

Ongoing global trade issues will have an indirect effect in terms of market sentiment. There's the reversal of quantitative easing (QE).

4. Interest rate hikes and reversal of QE

Dimon doesn't feel that there can be a domino effect. There are a lot more reserves in the world today. People have financed more rationally. If there are good growth and dollar rate rises, the borrowing costs will go higher but there has been a cycle and not all country will be the same.

5. Can trade war bring an end to global trade?

Dimon thinks that there is a need for reforms. Global trade has lifted 2 billion people out of poverty. He feels that the WTO does have some downsides, and there are legitimate complaints that it takes too long, shows favouritism and it does not deal with some of the things the world has to deal with today - like data localization and protection of IP. 

On trade, he said that he is for free and fair trade and there are legitimate complaints about China which US President Donald Trump points out. But one can sit down with the trading partner and have a conversation on how to fix.