FED RATE HIKE: LET’S TAKE IT AS A BOOSTER DOSE

Madam Yellen is definitely better than her predecessor, Mr Ben Bernake. She did not give, ‘zor ka jhatka dheere se’. In fact she managed in a way that everybody took it well. There is no mayhem in the markets right now and whatever it was for the past few days, you can’t blame her. Credit for that goes to everybody from OPEC to US shale oil producers to Russia to Syria and not to forget our own politicians performing various theatricals to pass this GST bill.

I remember the days of my booster shots when my mom used to update me few days ahead of that horrible thing. I felt awful everyday and mom made it atrocious by telling me that it for my good only. But once it’s was over, I definitely felt better. I think the markets share the same feeling after the 25 basis point shot, they are feeling better. Our domestic indices opened positively and of course Dow Jones jumped 250 points and S&P 500 gained 1.45% after the rate cut.

Coming to the FED rate, it is now in the range of 0.25% to 0.50%. US FED has also made its clear that policy stance remains accommodative and further rate cuts would be dependent on the conditions of both the US and the world economy. Strong US economy is good news and though the inflation target of 2% is yet to be achieved, high employment levels will lead to higher consumption and higher imports benefitting the world economy as a whole. For India, higher FED rate means dollar borrowings will be expensive for corporates which account for 80% of our total foreign borrowings. With CAD and fiscal deficit in control, India is well placed to weather the coming US interest rate policy tightening in 2016. As for the stock markets, they have to start looking for the next volatility trigger factor to thrive.