Veteran banker Uday Kotak has said central bankers who do not follow the “ring master US Fed” face the risk of getting their currencies crushed as has happened in the case of the Japanese Yen.
Kotak, who is also the managing director of Kotak Mahindra Bank, said that globally the central banks take a cue from the US Fed and decide their monetary policy accordingly.
“Central bankers globally move in a herd led by ring master the US Fed. Whether easy or tight money. Go out of line your currency is crushed. Look at Japan, a 30 plus percent depreciation. That’s the power of the US $ the most sought after asset in the world today. How long?” he has said in a tweet.
The US Fed has been tightening its monetary policy to rein in inflation, which has touched a record 41-year high.
The Fed began its tapering process in December 2021, with monthly asset purchases reduced from USD 120 billion to USD 105 billion.
So far this year, the Fed hiked its benchmark rate by 150 basis points or 1.5 per cent.
Last month, the Federal Open Market Committee (FOMC) hiked the interest rate by 75 basis points following an already aggressive 50 basis point increase in May 2022.
The Reserve Bank of India (RBI) preempted a Fed rate hike by increasing the benchmark repo rate by 40 basis points in May, followed by another 50 basis points in June.
It is widely expected that the US Federal Reserve will hike rates by another 75 basis points in its next meeting later this month as inflation has inched up further in the world’s biggest economy.
The aggressive monetary tightening by the US Federal Reserve has resulted in an outflow of foreign capital from various emerging economies, including India, putting pressure on their domestic currencies.
The rupee has depreciated about 7.5 per cent against the dollar in 2022 so far. The rupee for the first time touched a low level of 80 against the greenback in intra-day spot trading at the interbank foreign exchange market on Monday.