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US FED KEEPS INTEREST RATES UNCHANGED

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US FED KEEPS INTEREST RATES UNCHANGED

US fed is the central bank of USA.

Just like RBI in India, US Fed is also responsible for maintaining inflation levels in USA.

What is Interest Rate?

It is similar to repo rate ie the rate at which the central bank issues loans to the Scheduled Commercial Banks.

If interest rates go up, it makes the financial instrument more attractive and urges people to park their money in them, as a result, reducing inflation.

IMPACT ON INDIA (OF INCREASED RATES BY FED RESERVE)

  • On Indian Market
    • Fed’s continuous rate hikes does not augur well for emerging markets including India.
    • An increase in US interest rates results in an outflow of funds to US markets, putting Indian stock markets and currencies under pressure.
    • Equity markets are likely to see increased volatility in the next few months.
  • On Indian Rupee
    • The outflow of funds from Indian markets will have an impact on the exchange rate of Indian rupee against the dollar. The Indian rupee has been losing value against the dollar since early 2022.
    • A weaker rupee should help Indian exporters at some-level. Nonetheless, the chances of a recession in the rich world, including the US, have gone up and that will hurt them more.

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