The US Federal Reserve (Fed) is expected to raise interest rates by 50 basis points at its June 14-15 policy meeting. This would be the second consecutive 50 basis point rate hike, and it would bring the Fed’s benchmark interest rate to 1.50%-1.75%.
The Fed is raising interest rates in an effort to combat inflation, which is running at a 40-year high. Inflation has been rising due to a number of factors, including supply chain disruptions, the war in Ukraine, and strong consumer demand.
The Fed’s decision to raise interest rates could have a significant impact on global markets. Higher interest rates could make it more expensive for businesses to borrow money, which could lead to slower economic growth. Higher interest rates could also lead to a decline in stock prices, as investors demand higher yields on bonds.
If the Fed’s rate hike leads to a global economic slowdown, it could impact the Indian stock market as well.
What is the effect on the Indian market?
the US Fed rate hike is likely to have a negative impact on the Indian market. Here are some of the reasons why:
- Higher interest rates in the US will make it more expensive for Indian companies to borrow money. This could lead to lower investment and slower economic growth in India.
- Higher interest rates in the US will also make it more attractive for Indian investors to invest in US assets. This could lead to capital outflows from India, which could weaken the rupee and make imports more expensive.
- A slowdown in the US economy could also have a negative impact on the Indian economy. This is because India is a major exporter of goods and services to the US. A slowdown in the US economy could lead to lower demand for Indian exports, which could hurt Indian companies and the Indian stock market.
However, it is important to note that the impact of the Fed rate hike on the Indian market will depend on a number of factors, including the pace of economic growth, inflation, and the global economic outlook. If the Indian economy continues to grow at a healthy pace, the impact of the Fed rate hike could be limited.
Here are some of the things that the Indian government and the Reserve Bank of India (RBI) can do to mitigate the impact of the Fed rate hike:
- The government can increase public spending to boost economic growth. This could help to offset the negative impact of higher interest rates.
- The RBI can cut interest rates in India. This would make it cheaper for Indian companies to borrow money and invest.
- The RBI can also intervene in the foreign exchange market to prevent the rupee from depreciating too much. This would help to keep inflation in check and protect Indian companies from the impact of higher import costs.