Rajan says faltering US, global economy behind Fed delay

RBI Governor Rahguram Rajan today said the US Federal Reserve was impelled to hold near-zero rates again due to the emerging threat to the global economy as well as its concern over health of the American economy.

"If we look around the world today, it doesn't present a pretty picture. Industrial countries are still struggling, with a few exceptions, to grow and the uncertainty about growth in the US as well the world is probably what impelled the Fed to stay on hold yesterday," Rajan said here.

The Governor was making his opening remarks before delivering the CK Prahalad memorial lecture here this morning.

In what could be termed as the most-awaited Fed meeting since the 2008 global credit crisis, the world's most powerful central bank again postponed its intended decision to increase the rates from 0.00-.025 per cent till the end of the year, giving a big relief to India and other developing countries.

"To support continued progress toward maximum employment and price stability, the Fed committee today reaffirmed its view that the current 0 to 1/4 per cent target range for the federal funds rate remains appropriate," Federal Reserve chair Janet Yellen said after a two-day meeting in Washington.

In New Delhi, Economic Affairs Secretary Shaktikanta Das said the US Fed decision gives more room to emerging markets for policy adjustment. "The Fed has given a clear signal that any increase would be calibrated," Das said in first official response to the Fed decision.

The market anticipates that Rajan will cut rates at the September 29 meeting.

It can be noted that the world's second largest economy China has been in perils since beginning of the year, which pulled down global commodity prices to near record lows.

The Fed said it anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labour market and is reasonably confident that inflation will move back to its 2 per cent objective over the medium-term.