Scorched water last resort.

The US Federal Reserve kept its interest rate unchanged for the fourth time in a row, "keeping the bank's influential lending rate hovering around 4.3%, where it has stood since December. This came despite forecasts from policymakers suggesting they expect slower growth, higher unemployment and faster inflation than they did just a few months ago." BBC. "In new economic projections...policymakers sketched a modestly stagflationary picture of the economy, with growth in 2025 slowing to 1.4%, unemployment rising to 4.5% and inflation ending the year at 3%, well above the current level." The Fed projected a half a percentage cut in interest rate this year and a single quarter percentage points cut in 2026 and 2027. The consumer price index (CPI) inflation "increased 0.1% for the month, putting the annual inflation rate at 2.4%." CNBC. "US wholesale prices crept up less than expected in May," as "The Producer Price Index (PPI) rose 0.1% last month, up from a 0.2% decline in April, according to the Department of Labor figures." ET. In India, the CPI inflation came in at a six-year low of 2.8% while the Wholesale Price Inflation (WPI) was at 04% in May. This fall is because, "The overall food inflation in CPI and WPI came in at 0.99% and 1.7% respectively in May 2025," wrote Roshan Kishore. "The non-food component (core) of CPI grew at 4.1%. The Reserve Bank of India (RBI) has cut its policy rate by 50 basis points (bps) in its June meeting and a cumulative 100 bps in 2025. HT. As a result, "major banks in the country, including State Bank of India (SBI), HDFC Bank and ICICI Bank, reduced their interest rates on savings accounts." Depositors will receive lower returns on their savings. ET. Naturally, investors are shifting away from savings in banks in search of higher returns. "Retail investors now represent over 91% of India's 230 million of mutual funds folios as of April 2025, compared to just over 100 million in May 2021" and "This increase has led to assets under management (AUM) more than tripling, reaching 69.50 trillion from 22.26 trillion at the end of FY20." According to a study by the RBI, "the proportion of households investing in risky assets climbed to 17.8% in 2022 from 15.7% in 2019." msn. Household borrowings stood at Rs 77 trillion in June 2021. This had risen 56% to Rs 120 trillion in March 2024, which was 41% of GDP. By June 2024, this was at 42.9% of GDP. Interest payments on rising debt is squeezing consumer spending. Mint. RBI's low policy rate has resulted in a dramatic fall in the government's cost of borrowing, so that "The yield gap between India's 10-year government bond and the US 10-year Treasury note has narrowed significantly, falling to just around 1.88 percentage points - a far cry from the 6.35 percentage points spread seen in 2014." Mint. Hooray. The problem lies in the Strait of Hormuz between Iran and Oman. "In 2024, oil flow through the strait averaged 20 million barrels per day (b/d), or the equivalent of about 20% of global petroleum liquids consumption. eia.gov. A scorched-earth policy, adopted by a vanquished nation to deprive an invading enemy of sustenance, is well known since early times. Britannica. If driven into a corner, Iran could adopt a scorched water policy. Scuttle one of its own fully loaded oil tankers in the Strait and set fire to it. That would set fire to oil prices, cause inflation to shoot up and markets to tank. Loaded with debt, Indian households will find it hard to survive a collapse in the value of investments. How will the RBI manage that?