Standard Chartered group chief executive Bill Winters believes that inflation will remain a problem for a longer time and despite a recession, rates won't go back to zero.
"I think the biggest threat is inflation and the inability of central banks to actually control inflation. Inflation is going to be a little bit harder to tackle than what the market is thinking. Which means higher interest rates for longer," Winters said in an interview with the Economic Times (ET).
"Given the intractability of inflation, it's hard to see that we'll go back to zero interest rates, even if we have an economic slowdown. We had quite a severe economic contraction in 2020 into 2021, but still no credit losses," said Winters.
Winters believes the interest rates are at their peak and we could end up with a terminal (US) Fed rate of 5 percent, however, it will depend on the changing data.
Nevertheless, Winters is of the view that inflation is going to be pretty difficult to bring down.
"I think central banks have to do a little more. Ideally, you can slow wage growth, because I think that is really the driver at this point. You can't slow wage growth without slowing the economy. And they'll keep on that and there's going to be no relaxation," said Winters.
Winters has a firm faith in the global financial system and he highlighted that the banking system is rock solid.
"You get a massive shock with a pandemic and then a further massive shock with wars and the effects of climate change and geopolitical tensions. And there's almost no impact on the economy because the banking system is rock solid," said Winters.
"The average level of bank capital in 2006 was 5.5 percent. The 14 percent is the basis now plus another 10 percent loss-absorbing capital. So, you were 24 percent capital ratios now relative to what was about 6 percent," Winters told ET.
Disclaimer: This article is based on an ET interview. The views and recommendations given in this article are those of the analyst. These do not represent the views of MintGenie.
