India better placed than peers over US rate hike

The U.S. Federal Reserve’s “accommodative” monetary stance is good for emerging market economies, and India does not expect to see large foreign selling from the country, India’s economic affairs secretary Shaktikanta Das said on Thursday.

For the first time in a decade US Federal Reserve has hiked interest rates by 0.25 per cent, signaling a recovery in the US economy.

“A dovish rate hike by the Fed is likely to be positive for the emerging market forex space as questions persist not only over the timing of further rate hikes but also on the extent”.

However, Indian markets shrugged off any negative impact and the benchmark BSE Sensex index actually gained over 300 points in Thursday’s trade, which analysts attributed to the markets having already factored in the Fed hike.

“As far as India is concerned, we are really well cushioned”.

The US Fed move was widely expected. “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. The rate hike, though a small one, is being seen as a sign of how much the USA economy has healed since the 2007-08 financial crisis – a reason, perhaps, for the Indian equity indices to log gains for the fourth straight session.

Reserve is in line with global expectations and its impact on India will be “very minimal” due to our strong macroeconomic conditions, Chief Economic Adviser Arvind Subramanian said today. “India (is) well prepared”. “India is much better placed today in terms of real GDP growth, lower inf-lation, lower current acco-unt deficit and on-going fiscal consolidation. And therefore, we continue to be a bright spot in the global economy”, Sinha added.

Asked about the behaviour of the currency markets in the wake of the rate hike and how the government intends to tackle possible capital outflows, the Finance Minister said, “Let’s watch for a few days”. Minutes after the opening bell, it was ruling at 25,579.77 points, with a gain of 85.40 points or 0.33 percent. “Volatility in Indian markets should be quite minimal”, said Mr Subramanian.