We all know consumer price inflation jumped to a 40-year level in June in the US rising 9.1% year on year. What effects are expected to be seen by developing countries such as India if the Federal Reserve raises rates a bit extra? You will see that the rupee value will go down as compared to US Dollar. Let me explain more about the Fed rate hike impact on India.
Get a home loan through NoBroker at the very cheapest interest rates.What is the impact of Fed rate hike on Indian market?
When interest rates rise, the entire world market is impacted, such as the Indian market. Because the US has the largest economy in the world, The difference in interest rates between the US and India will expand as a result of the increase. As a result, international investors will be encouraged to leave Indian markets and buy US equities. Higher Fed rates will also boost the value of the dollar and devalue the rupee relative to the dollar. But long-term investors may not be impacted by this. Short-term investors will be turned off by the market's instability and the weakening rupee and they will leave the Indian markets.
India is an importing nation, meaning it imports extra products from foreign marketplaces than it delivers to them. This year's CAD (Current Account Deficit) is expected to be at an all-time high. The Reserve Bank of India will also be expected to raise rates by at least 75 basis points, as predicted by local analysts. It will be done to maintain the stability of the rupee and the preservation of the rate fluctuation between the US and India.
Why does the Indian stock market react to Fed rate changes?
India is still a growing economy with vast growth chances compared to the US, an advanced country with few chances for progress. Additionally, US interest rates are far more moderate than those in India. Therefore, international investors borrow significantly in the US and then invest that money in the interest-rate-heavy Indian market. This considerably lowers their borrowing rates.
This is what you must be aware of what is Fed rate hike impact on India.
Read More: What is the current reverse repo rate? How inflation affects the price of commodities? How repo rate controls inflation?Your Feedback Matters! How was this Answer?
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How does US fed rate affect India?
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2022-12-26T14:09:45+00:00 2022-12-26T14:09:45+00:00Comment
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