New Delhi : Asserting that Indian markets is well ‘fortressed’ to deal with any major volatility, the government today said the long-awaited rate hike by the US Federal Reserve will have minimal impact here and should not lead to any large-scale outflow of foreign funds.
The Fed move is widely seen as bolstering the value of the US dollar, a currency used by India and other nations to buy and sell most raw material including oil.
“We have to consider how the Fed is going to raise its rates going forward… We are very well-equipped to deal with any turmoil or volatility that may ensue as the Fed raises rates,” Minister of State for Finance Jayant Sinha said here.
Chief Economic Adviser Arvind Subramanian said India is “relatively well cushioned” and saw “quite minimal” volatility in the country’s markets.
“We have a fortressed balance sheet, sound fiscal management, and strong GDP growth. And therefore, we continue to be a bright spot in the global economy,” Sinha said.
Fitch Ratings believes India is better placed than peers to deal with the hike, given its improved external balances, favourable growth outlook, low foreign holdings of sovereign debt, and relatively less dependence on commodity exports.
Meanwhile, Hong Kong’s de facto central bank raised its base interest rate after the US Federal Reserve decision.Hong Kong has maintained a decades old peg with the US dollar, which keeps Hong Kong at the mercy of Fed policymakers.
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Re at 3-wk high on Fed’s soft guidance
Mumbai: The rupee ended at an over three-week closing high against the US dollar on the back of US Federal Reserve’s soft guidance on interest rates hike in 2016, said dealers. The Indian currency closed at 66.4225 per dollar, as against 66.7300 at close on Wednesday.
The Federal Open Market Committee indicated that the path for future interest rates hikes will be “gradual”. “By increasing rates, they have indicated that the US economy is improving which was risk-positive and thus emerging markets assets rose. The selling today was along expected lines,” a dealer with a state-owned bank said. Dealers said foreign banks sold the greenback all day for foreign fund inflows into local share markets. Exporters were also seen selling the US unit in large volumes.