FED Reserve Rate Hike: Impact on India


FED Reserve Rate Hike: Impact on India

The Federal Reserve (US’ central bank) raised the Federal Funds Rate target by another 75 basis points Wednesday. Since March, the Fed has steadily pushed up the targeted FFR from zero to almost 2.5% now. The objective is to tighten money supply since inflation was very high at 9.1% in June.

By decreasing the amount of money, as well as raising its price (the interest rate), the Fed hopes to dent the overall demand in the economy. Reduced demand for goods and services is expected to bring down inflation.

Global slowdown has no positives for India: This, along with recession fears in the US economy, is bound to impact India. In the latest — July update of the — World Economic Outlook, the IMF has downgraded the growth projections for the US, China and India. “Downgrades for China and the United States, as well as for India, are driving the downward revisions to global growth during 2022–23, which reflect the materialization of downside risks highlighted in the April 2022 World Economic Outlook,” it states.

A global slowdown is unlikely to have any positives for India apart from some relief in crude oil prices.

The IMF has reduced 0.8% off India’s GDP projections for the current year and the next. “For India, the revision reflects mainly less favorable external conditions and more rapid policy tightening,” explains the IMF.

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