Podcast | Digging Deeper: How do US Fed rate hikes impact India?

On September 26, the US Federal Reserve, the American counterpart of the RBI, lifted short-term rate by a quarter-point to a range of 2 percent to 2.25 percent. This is a benchmark for many consumer and business loans. It was the eighth such hike by the Fed since 2015.

Rate hikes by the Federal Reserve are important news because they generally lead to a rise in US treasuries yield and act as incentives for foreign funds to park their money in US markets for higher rate of interest. That then leads to foreign fund outflows from emerging markets - like India, Turkey, Argentina etc - because rate hikes tend to lower investment returns for foreign investors and prompt them to sell. Such a development is bad news for our currency because the dollar grows stronger in the currency market.

That’s the briefest way to summarise the fallout of a US Fed rate hike. We are going to attempt in this deep dive to explain in a bit of detail how India is affected by the US Federal Reserve, and what the immediate future looks like for the Indian economy.