Fed keeps global mkts on edge, govt says India prepared for a rate hike
NEW YORK/NEW DELHI: World stock prices held near three-week highs and the dollar fell on Thursday as investors awaited whether the US Federal Reserve will end its nearzero interest rate policy. Indian markets were closed for a holiday.
US two-year Treasuries yield held below a near four-and-a-half year high. London brent crude stood at around $49.60 a barrel, after hitting an early high of $50.14. US crude was hovering around $47.35 a barrel. Globally, gold prices fell at $1,118.36 an ounce, after rising 1.3% on Wednesday, its biggest daily jump since August 20.
With short-term rates in the US ruling at near zero for nearly eight years, India and other emerging markets offering higher returns were the preferred hotspots for foreign funds. But an interest rate rise in the US could move money out of the country to safer locations closer home. This could hurt India’s stock markets and hit the rupee. The Indian currency is currently hovering around 66.50 to a dollar. It had touched a record low of 68.85 to a dollar in August, when the Fed first indicated its intent to rollback its monetary stimulus or quantitative easing programme.
But t he gover nment on Thursday expressed confidence of weathering the impact of a rate hike by the US central bank, or any other macro event, with “multiple layers of defence” and RBI’s preparedness to deal with the situation. “In a situation where there is turmoil almost by the day as far as global markets are concerned, we are trying to make the fundamentals of our own economy strong so that our ability to resist these changes can substantially improve,” finance minister Arun Jaitley said.
“Whether it is the Fed raising rates or other macro events, the best way to deal is to build multiple layers of defence, which we have now put in place,” minister of state for finance Jayant Sinha said. “(RBI) governor (Raghuram) Rajan is fully seized of all the matter... RBI is very well prepared for whatever might come,” he added.
Central bank policymakers for nearly a year now have said that the global economies are now bet- ter prepared to deal with a Fed rate hike, and it was time that the US central bank raised rates.
“A good argument for raising now is that everybody knows that a rate increase is inevitable and speculation about the timing is creating a lot of volatility. One way to reduce that is to end the guessing game,” said Ann Owen, an economics professor at Hamilton College in Clinton, New York, and a former Fed economist.
Fed chairperson Janet Yellen has made clear she would rather delay an interest rate hike for too long than move sooner and risk jeopardising economic recovery
“It is a game-time decision. The key is what Yellen thinks and my guess is that she will want to wait,” said Mark Zandi, chief economist for Moody’s Analytics. “If you put yourself in her shoes, you don’t want to err by going too soon,” he added.
Traders had expected the Fed to raise rates for most of this year, but those expectations faded following global market turmoil this summer on worries about China.
Mixed US data on jobless claims, housing starts and regional manufacturing did little to change traders’ view on the timing of the Fed’s “lift-off.”