Indian markets are well placed to absorb the 0.25 per cent interest rate increase by the US Fed last night, the finance ministry said on Thursday.
“Indian markets (are) well placed to absorb the US Fed rate hike. Gradual approach in future increases augurs well for emerging markets,” Economic Affairs Secretary Shaktikanta Das tweeted.
Stocks opened in the green as the Sensex was trading 206.40 points up at 29,604.51. The Nifty put up a good show by scaling a new intra-day peak.
Ditto with the rupee, which continued with its solid performance by appreciating another 47 paise to hit a new 16-month high at 65.22 against the dollar in early trade today.
As popularly expected, the Federal Reserve raised its benchmark interest rate for the second time in three months and forecast two additional hikes this year.
The Fed’s key short-term rate is up by a quarter-point to a still-low range of 0.75 per cent to 1 per cent.
“In view of realised and expected labour market conditions and inflation, the committee decided to raise the target range for the federal funds rate... Near-term risks to the economic outlook appear roughly balanced,” the Federal Open Market Committee (FOMC) said in its statement last night.
On Fed rate hike, Chief Economic Advisor Arvind Subramanian said it was very much anticipated and will have very little impact on India.
“But I think what was interesting is that it’s been seen as a dovish rate hike... That’s why the dollar actually declined a little bit and US bonds also declined,” he said.
Since it is a little more dovish than expected, there should be very little impact on the rupee and capital outflows.
“I think there should be very little volatility in the Indian markets... There’s been pressure on the rupee to strengthen and I think that might continue to some extent,” he explained.