The Federal Reserve raised interest rates for the first time in almost a decade, signalling that the U.S. economy had largely tided over the fallout of the 2007-2009 financial crisis. It raised the range of federal funds rate by a quarter of a percentage point.
Investors in India shrugged off the decision, with stocks surging and the rupee closing at a one-month high. The increase, which had been factored in by most market participants, ended the uncertainty over the Fed’s timing and helped the BSE Sensex climb almost 310 points.
India well prepared to cope with U.S. Fed rate hike: Finance Ministry
The Union Finance Ministry has ruled out any adverse impact on the Indian economy following the U.S. Federal Reserve’s decision to raise interest rates by 25 basis points, that many feared could lead to a flight of capital from emerging markets like India.
The Fed’s first interest rate hike in nine years and its reference to ‘gradualism’ are on expected lines and India is well prepared, said a top ministry official. Indian stocks and forex markets have reacted well, the ministry said in another statement on Thursday evening. “Both the benchmark market indices actually rose in early trade on Thursday and continue to trade in the green. The rupee is stable in the 66-67/$ range. This underlines the strong macroeconomic fundamentals of the Indian Economy and the efforts we have made to achieve macro stability over the last one and half years,” the Ministry said.
Expressing hope of ‘sustaining economic reforms going forward into the future,’ the Ministry said India was much better placed today in terms of real GDP growth, lower inflation, lower current account deficit and on-going fiscal consolidation.
The Ministry said the rate hike marks the beginning of gradual withdrawal of the accommodative monetary policy stand adopted since 2006. “Going forward, the actions of the US Federal Reserve are expected to be cautious and data driven,” the Ministry said.
“(This will mark) the end of uncertainty and (the Federal Reserve’s) accommodative outlook for future will help policy makers in emerging economies,” said secretary, economic affairs in the ministry of finance, Shaktikanta Das, in a series of tweets.
“The U.S. Federal Reserve’s confidence on recovery is good news for our exports, especially from IT sector,” Mr.Das wrote.
Industry chamber FICCI also said that the Fed’s move was anticipated by corporate India and it doesn’t expect any major impact on India.
“Our economic fundamentals remain strong with improved growth and twin deficits largely under control. The rate hike also signals a stronger US economy, which bodes well for the pick-up of demand globally and hence for Indian exports of goods and services,” said A. Didar Singh, Secretary General at FICCI.
Exporters, though, are anxious on the implications of the Fed rate hike.
“While the rupee may itself weaken as the U.S. dollar would strengthen, what is worrying Indian exporters is that the erosion in currencies of competing economies like Indonesia, Philippines, Brazil, China, and Russia would be much sharper making their exports more competitive,” said T. S. Bhasin, Chairman of engineering exporters body EEPC India.
