After US Federal Reserve has raised its key interest rate by 75 basis points, amid concerns about its impact on inflation India Because it may further weaken the rupee through possible foreign investment outflows. However, four economists News18.com Spoke said it will not have any direct impact on consumer prices in India for now.
However, he added that in the coming months, if the rupee remains weak due to FPI outflows, it will drive up inflation through costly imports. Otherwise, a US Fed hike could have a positive effect on prices here if global commodity prices are “anchored” as a result of higher interest rates.
The US Federal Reserve has increased its key interest rate by 75 basis points (bps), the highest since 1994. It had earlier planned a 50-bps hike for the June meeting, but US consumer inflation was higher than expected in May, at a four-decade high of 8.6 per cent.
Madan Sabnavis, Chief Economist, Bank of Baroda, said, “There is no direct impact of the US Fed hike on consumer prices in India. However, foreign funds in India will be adversely impacted and may see outflows, leading to an increase in the rupee against the dollar. May weaken further.Weak rupee has indirect effect on inflation in India as it makes imports costlier.
Electronics, automobiles and pharmaceuticals, among other industries, are majorly dependent on raw material imports. As companies’ input costs may rise, so may the prices of their products. “But, it depends on the fact whether the companies are willing to pass on the higher input cost as rising prices will affect their sales,” Sabnavis said.
The Indian domestic currency had closed 18 paise lower at 78.22 against the US dollar on Wednesday. RupeeHowever, there was a rebound on Thursday and it gained 15 paise to 78.07 against the US Dollar, as US Fed hikes were in line with market expectations.
Recently, companies across sectors increased the prices of their products citing higher input costs. Some of them resorted to reducing the weight of the products instead of raising the prices so that sales would not be affected. FMCG chief in two months of April and May this year Hindustan Unilever Limited (HUL) doubled the prices of its goods citing rising costs.
Dharmakirti Joshi, chief economist, Crisil, said, “The rate hike was not unexpected. It was expected and has already been factored in at many places. Even the rupee has bounced today.”
He said the Fed rate hike is not going to have any major impact on consumer prices in India yet. “Its impact in the future depends on how aggressive the US central bank is to control inflation there.”
Retail inflation based on the Consumer Price Index (CPI) in India stood at 7.04 per cent in May. Though it was lower than inflation (7.79 per cent) in April, it still remains above the RBI’s target range of 2-6 per cent. Consumers in India are already paying higher prices for commodities, vegetables, oil and electronic goods. Inflation is likely to pick up in the coming months, RBI said in its monetary policy statement last week.
An economist on condition of anonymity told News18 that if the US Fed raises its policy rates and the RBI does not; In this case, foreign portfolio investment sees higher outflows. Therefore, the impact of the US Fed rate hike on the markets will also depend on the RBI’s future actions. “For now, there is no direct impact of the increase in US rates on consumer prices in India. There are many factors influencing prices.”
Soumyajit Niyogi, director, India Ratings and Research, said the Indian economy will have a dual impact. “The sharp rate hike in the US should stabilize commodity prices globally, which is favorable for India. On the other hand, the slowdown in the US economy, even if temporary, will adversely affect exports.
Foreign investors have pulled out around Rs 14,000 crore so far this month. With this, net outflows from equities by foreign portfolio investors (FPIs) reached Rs 1.81 lakh crore so far in 2022, data from the depositories showed.
read all breaking news , today’s fresh news watch top videos And live TV Here.