The US Federal Reserve last night hiked interest rates by 0.25 per cent. This is the first hike in about a decade, signaling a recovery in the US economy.
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Chief Economic Adviser Arvind Subramanian said India is “relatively well cushioned” and saw “quite minimal” volatility in the country’s markets.
This was announced on Wednesday after a two-day policy meeting between officials with stocks rallying in early trading in Europe and the US.
“The Fed hike is on expected lines”.
Economic Affairs Secretary Shaktikanta Das said the Fed’s “accommodative” monetary stance is actually good for the emerging market economies and India does not expect any large selling by foreign funds.
Credit rating agency Fitch Ratings has said that India’s less dependence on exports and improved external balances makes it better placed than many of its peers after the American central bank – the US Federal Reserve – raised its key interest rates.
“This rate hike was widely anticipated so, I don’t think it would have much impact of this per se”.
Raising the US Fed rates by 0.25% could precipitate into capital flight out of emerging markets such as Nigeria with investors re-balancing their portfolios by holding more US investments as a hedge.
As far as the indian rupee is concern, Ind-Ra has been highlighting that the rupee is likely to correct from the recent lows of 67/USD to around 66.3-66.6/USD mark (DebtFX).
“The impact of policy normalisation by Fed is unlikely to have any fundamental shift in the outlook for the Indian economy”, India Ratings said. “So, I think for all these reasons, impact on India would be very minimal”, he added.
For financial markets, with the looming uncertainty over the Fed policy path behind, the drivers for markets hereon will be more inward focused rather than external development reliant.
Emerging markets like Nigeria will not like the current rate hikes considering its potential impact on local currencies.
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It was a reluctant rate hike on part of the Fed as there were voices in the United States saying that the economy was not strong enough to take such a step, he added.
