In News: The US Federal Reserve hiked interest rates by three quarters of a percentage point, its most aggressive move since 1994, in a bid to tame runaway inflation.
What will be the impact on other markets, including India?
A hike in rates in the US could have a three-pronged impact.
- When the Fed raises its policy rates, the difference between the interest rates of the two countries narrows, thus making countries such as India less attractive for the currency carry trade.
- A high rate signal by the Fed would also mean a lower impetus to growth in the US, which could be yet negative news for global growth
- Higher returns in the US debt markets could also trigger a churn in emerging market equities, tempering foreign investor enthusiasm
- There will be potential impact on currency markets, stemming from outflows of funds.
Source: Indian Express
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