India best equipped to meet Fed actions

Is it the policy of the US Federal Reserve to keep the global stock markets guessing? That was probably the most pertinent question the media asked US Fed chief Janet Yellen after the Fed market committee meeting on March 18. The statement after the two-day committee meeting was as ambivalent as the earlier ones, except for the dropping of the word “patience”, which, in any case Ms Yellen clarified, did not mean that they would be impatient in rushing to raise interest rates. The global markets received this with cheer, sending stock indices soaring, as it meant there would not be an outflow of funds from emerging markets back to the US. But Ms Yellen left the interest rate issue hanging over global markets like the sword of Damocles as she said it would be dependent on data regarding employment, inflation, pick-up in the sluggish labour market and the economy which has seen growth moderating. The US inflation rate has been languishing at 0.2 per cent, way behind the Fed target of two per cent which is now expected to be achieved a year later in 2017. The inflation rate has been restrained by low fuel prices and cheaper imports because of a strong dollar. Whilst she said it “would not be appropriate to provide a calendar-based guidance”, she also indicated that December and January would be crucial for the monetary stance if there was an improvement in the economy. She also said nothing may happen at the June meeting though some analysts feel September may be crucial. Ms Yellen expressed her concern of the US Fed’s monetary stance on global financial stability. India remains one of the few economies, if not the only among the emerging markets, that is prepared to meet any eventuality created if and when the Fed raises interest rates. RBI governor Raghuram Rajan has to be credited for strengthening India’s forex reserves through various measures to cushion any outflow of dollars that could follow a Fed rate hike. Even with the hike India would still remain the most attractive among emerging markets because it is the fastest growing economy in the world. The Indian markets have their own domestic issues, as was evident on the day of the Yellen press conference. The markets shot up in the first half of trade but then reversed on fears of the coming results quarter being subdued. The Indian markets are weak at the moment and have fallen four per cent from their highs in March. The markets are also overpriced following the fast run-up after the election results and traders are using every rally to book profits. For now the Indian markets are very jittery and the Fed uncertainty will be used as an excuse to offload shares and book profits when it suits traders and speculators.

India remains one

of the few economies, if not the

only among the emerging markets, that is prepared to meet any eventuali

ty created if and when the Fed rais

es interest rates