Skip to main content

Fed rates and Indian domestic economy

The relation between the Fed’s interest rates and the markets here

The US Federal Reserve has decided to leave the interest rates unchanged. However, it has expressed concerns on the escalating crisis. The unanimous decision left the benchmark overnight rates at two percent. The Fed has said, 'strains in the financial markets have increased significantly and labour markets have weakened further'. The central bank said it also remained concerned about the inflation pressures. The Fed said the downside risks to growth and upside risks to inflation are of significant concern to the committee. The move is expected to enable banks in the US to borrow money for the short term from the Fed as well as lend to each other at the same rate as before.

In the past few months, the Federal Reserve had been cutting US short-term interest rates amidst concerns that the economic growth will slow down in the coming months. The effort was to stimulate economic activity and keep the country from dipping into a recession. According to the Federal Open Market Committee (FOMC) the upside risks to inflation roughly balanced the downside risks to growth. Earlier, the FOMC had indicated that the strains in the financial markets had somewhat eased. Housing is likely to slow the pace of economic slowdown, it added. Though, some inflation risks is arising.

With the last year bankruptcy of the financial major Lehman Brothers and troubles of AIG, the Fed had no other option but to keep the interest rates steady. A good point was that the oil prices have somewhat eased. According to the Fed, the pace of economic expansion will slow down in the near term, partly reflecting the intensification of the housing correction.

Last year, the Fed had slashed borrowing costs periodically. The concerns over housing and credit seem to be dominant. The Fed had reduced rates in an effort to keep the economy growing at a 'moderate pace'. The move was aimed to avoid a recession.

The central bank's present move will offer some relief to the ailing credit markets which have tightened as major commercial banks have sustained hefty losses tied to mortgage backed securities. This action will help stabilise the financial markets.

There are still sectors of the credit markets that are not functioning very well. Without enough capital, firms hesitate to invest.

The Fed has cited concerns of rising energy and commodity prices which could renew inflationary pressures. Also, housing and credit worries outweigh inflation risks. Sales of existing homes and apartments have dropped.

Inflows from abroad may reduce after the Federal Reserve maintained interest rates. There would certainly be some repercussions on the domestic markets. It may be a signal to the Reserve Bank of India (RBI) that interest rates need to be maintained at the present levels.

In the past, the rate cuts by the Fed have translated into a major boost for the domestic stock markets, and increased inflows of foreign funds. With an increase in foreign funds, the dollar depreciated against the rupee. So, exporters felt the pinch. Moreover, with foreign funds pouring in, liquidity increased and the risks of inflationary pressures also increased. A fresh flood of capital complicated the monetary and inflation management for the Reserve Bank of India. There were pressures on asset markets (stocks, bonds, currencies) on the back of risk-aversion induced capital outflows. The US holds significant implications for emerging markets.

The Fed interest rate stability helps the worth of US dollar-denominated investments. The dollar is likely to stop depreciating further against the rupee. The rupee has appreciated nearly 12 percent against the dollar in the last one year. The rising rupee value prompted most engineering and textile sector exporters to go for forward bookings of export shipments. This can help the competitiveness of exporters, especially textile and garment players.

Popular posts from this blog

ICICI Pru Mutual Fund Dividend

ICICI Prudential Mutual Fund has announced dividend under the following schemes: Scheme Dividend ( Rs /unit) ICICI Pru Capital Protection Oriented Ser V Plan B-D 0.03611325 ICICI Pru Capital Protection Oriented Ser V Plan B Direct-D 0.03611325 ICICI Pru Balanced Advantage Direct-DM 0.06 The record date has been fixed as February 08, 2017. ------------------------------ ------ Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 4 Tax Saver Mutual Funds for 2017 - 2018 Best 4 ELSS Mutual Funds to invest in India for 2017 1. DSP BlackRock Tax Saver Fund 2. Invesco India Tax Plan 3. Tata India Tax Savings Fund 4. BNP Paribas Long Term Equity Fund Invest in Best Performing 2017 Tax Saver Mutual Funds Online Invest Best Tax Saver Mutual Funds Online Download Top Tax Saver Mutual Funds  Application Forms For further information contact  SaveTaxGetRich on 94 8300 8300 ------------------------------ ------ Leave y...

What is Financial Freedom?

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)     There were many things common between our Freedom fighters. All had the Single vision (Free India), common goal (independence) and had a disciplined and focused approach. They were ready to do anything and everything and had made so many sacrifices to see India free . But the road to freedom was not easy .They had faced lot many hardships, went to jail so many times and even confronted physical and mental torture from the British. There was one more thing which proved to be an advantage to our fighters that most of them were professional lawyers. The knowledge of legal issues and its impact on our country at large has helped them counter various bills and proposed new laws by the then government. It is due to their continuous effort that we are able to achieve the goal of Independent Indi...

Hidden Bank Fees

  What Banks Hide From Customers Imagine after a peaceful and exciting holiday you receive your bank statement with steep charges. You then rush to your bank and start confronting staff members and to your dismay, you come to know that the high end debit card was charged very heavily. Wouldn't this cause damage to your finances? So remember, the world outside is full of deceptive and double cheating people. Unethical practices are always used by company sales person in order to meet the target. Credit card companies, mutual funds and bank institutions always play dirty tricks to lure customers and the practices are rampant. So here's how you should be careful while dealing with your banks: High End Debit Card Charges While opening an account with a bank you opt for a debit card with minimal charges. But later on when you upgrade your card and opt for high end debit card the annual charge rise by a good amount. Though such a card has slew of features but it all comes at a high ...

Partial withdrawal from PPF

  Public Provident Fund (PPF) account has a lock in period   If you opened a PPF account to meet your retirement needs,, think twice about withdrawing from this fund before retirement. But provided it's an emergency here are the rules. Public Provident Fund (PPF) account has a lock in period before which you cannot withdraw your money.   The partial withdrawal is allowed after the completion of 6 financial years . This means that you will be allowed a partial withdrawal from 1 April 2017. The maximum partial withdrawal allowed is the least of the following: 50 percent of the account balance at the end of fourth financial year, 31 March 15 50 percent of the account balance of the end of previous financial year, 31 March 17.   There's a loan option available on your PPF account between the fourth and the sixth financial year. You can obtain a loan of up to 25 per cent of the balance in your account. However, this will attract interest of 2 percent more than the prevailing ...

Updating a minor PAN card upon becoming adults

  Updating a minor's PAN card once they become adults A PAN card issued in the name of a minor does not contain the minor's photograph or signature, and therefore, cannot be used as a valid proof of identity. Once a minor PAN card holder turns 18, the relevant changes must be made in the PAN records. A new card is then issued bearing a photograph and signature. Application The applicant is required to fill up the "Request for new PAN card andor changes or correction in PAN data" form. The form can be filled up online by accessing NSDL's Tax Information Network website and clicking on the online PAN application tab. Information The applicant must mention the existing PAN number in the application and check the `photo mismatch' and `signature mismatch' boxes, and submit the online form. The form must also be printed out, signed by the applicant, and submitted along with two photographs. Documents Identity and address proof in the form of a copy of the app...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now