The United States Federal Reserve raised interest rates on Wednesday, a move that was widely expected but still marked a milestone in the central bank’s shift from policies used to battle the 2007-2009 financial crisis and recession. Will it impact India?
The United States Federal Reserve raised interest rates on Wednesday, a move that was widely expected but still marked a milestone in the central bank’s shift from policies used to battle the 2007-2009 financial crisis and recession. With this, the Federal Reserve has hiked interest rates for the second time this year and the seventh time since the normalisation cycle began in 2017.
While Fed’s policy decisions are not likely to impact India, Prakriti Shukla, an economist based in New York, said that an end to global liquidity conditions, in general, will continue to pose upside risks to India yields and policy rate, ceteris paribus. However, India will be well prepared by the time Fed announces its eight rate hike, she added.
Chetan Ahya of Morgan Stanley echoes the same view. In an interview with ET Now earlier this month, Chetan Ahya said that Fed’s rate hikes could impact countries like Argentina and Turkey, but India will be fine, given macro stability.
“There is a case for differentiation in EMs (emerging markets) this time. Unlike in 2003, it is not good for all EMs. Some EMs like Argentina, Turkey are in a bad shape and have a macro stability problem. But countries like India should be absolutely fine because we have a much better starting point in macro stability indicators,” he said.
The Fed hiked rate saying that the US economy is doing very well. “Most people who want to find jobs are finding them. Unemployment and inflation are low … The overall outlook for growth remains favorable,” Fed Chairman Jerome Powell said in a press conference.
Back home too, the Reserve Bank of India hiked repo rates for the first time in four-and-a-half years citing upward risks to inflation. The RBI hiked rates by 25 basis point to 6.25%, which is understood to have been a trigger for India’s benchmark 10-year bond yields above 8% recently for the first time in three years.