The US Federal Reserve hiked interest rates by a quarter point on Wednesday, signalling increasing confidence in the US economy’s recovery as the Trump administration is set to take over with promises to boost growth, spending and regulation.
The move is expected to impact millions of Americans, including home buyers, savers and investors. It would also have a significant impact on emerging economies, including India, which is already reeling under the effects of demonetisation.
While currency shortage has already dampened household spending, the move could further hit the consumption-linked sectors.
Fed rate hike was one of the fears that prevented the RBI from cutting rates during its monetary policy meeting last week. As a consequence, the foreign fund outflows, which were already at its peak, could worsen.
A stronger dollar, fuelled by the rate hike, could also negatively impact gold prices. While a strong dollar might be a reason for exporters to cheer, weak demand and stiff competition might work against them.
The rate hike, coupled with Trump’s proposed protectionist policies, could bring further gloom to global markets. However, some analysts are upbeat about India’s prospects, claiming it could boost our markets as they believe it would not have a big impact on foreign institutional investments.