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US Federal Reserve Chair Janet Yellen’s statement that current conditions make a stronger case for an interest rate hike, is unlikely to have any immediate impact on the Indian markets. While emerging markets in Asia could come under some pressure, analysts said Yellen’s position was on expected lines.
“The comment points to an imminent rate hike but subject to innumerable conditions. This effectively means that the timing of the rate hike is uncertain. It makes little or no difference to India in the current environment,” said Arun Kejriwal Founder KRIS Research.
On Friday, Yellen said the Federal Open Market Committee (FOMC), which determines the Federal Reserve’s monetary policy, expects moderate growth in real GDP, a strengthening of the labour market, and inflation rising to 2 per cent over the next few years. “Based on this economic outlook, the FOMC continues to anticipate that gradual increases in the federal funds rate will be appropriate over time to achieve and sustain employment and inflation near our statutory objectives,” she said.
“Indeed, in the light of the continued solid performance of the labour market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months. Of course, our decisions always depend on the degree to which incoming data continues to confirm the Committee’s outlook,” Yellen added.
Krishna Kumar Karwa, MD and CFO, Emkay Global Securities, said the Fed chief’s statement was along expected lines. “I don’t think we should expect any knee-jerk reaction in the market from foreign investors. For the last three to four trading sessions, the markets have been in consolidation mode, which is also true overseas.”
Soumyajit Niyogi Associate Director, India Ratings, however, said India could see increased market volatility. Between September and November, India will witness a likely $26-billion outflow of FCNR-B deposits, raised under a special Reserve Bank of India scheme in 2013. A possible US rate hike could add to the outflow. “India is likely to see increased market volatility after the announcement by Janet Yellen coupled with the impact of the large FCNR(B) deposit maturity.”
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