India well prepared to deal with Fed rate hike

With the US Fed’s decision to maintain status quo in monetary policy creating the buzz that the Reserve Bank of India would indeed cut rates later this month, economic affairs secretary Shaktikanta Das on Friday said the Fed’s move was positive for India, adding that RBI will take a considered view on whether to lower interest rates or not.

Das said it is a good sign that the US Fed has taken note of the global concern that these are volatile times and thought it fit that there should be coordinated action with regard to monetary policy. “While it is good for the risky assets such as India, the decision should lead to a relief rally in markets over the next few days before fundamentals take over”, said Ritesh Jain, CIO, Tata Mutual Fund.

RBI Governor Raghuram Rajan had earlier said the central bank will be closely watching the decision of the US Federal Reserve. “But I think that the US Fed has given a clear signal… that any adjustment will be very calibrated and cautious”, he said.

The fourth bi monthly policy would soon be out the fiscal year on September 29 and there would definitely be uncertainty over getting over the United States rate on interest. Since then, consumer as well as wholesale-price inflation have slowed to record lows in August on falling global commodity prices.

The Federal Open Market Committee of the United States central bank is scheduled to meet later on Thursday to review the interest rate regime – an event keenly watched by the global financial markets, including India. He said the government has allowed pension funds to put 5 per cent of their money into the equity market, which can eventually be increased to 15 per cent, to bring some stability in the capital market. “With respect to India, we will continue to do what we are doing, which is to strengthen our real economy to ensure we follow robust policies, and as far as monetary policy is concerned, Governor Rajan and RBI will make appropriate decisions”, he said.

Indian policymakers were expecting a modest rate hike by the Fed and were prepared to deal with any adverse impact thereby. He said the Indian economy is expected to grow over 7.5% in the current financial year.