Govt sees little Fed hike impact on 'fortressed' Indian mkts

Asserting that Indian markets is well 'fortressed' to deal with any major volatility, the government today said the long-awaited rate hike by the US Federal Reserve will have minimal impact here and should not lead to any large-scale outflow of foreign funds.

The Federal Reserve last night decided to hike the rate by 25 basis points after keeping them at near zero levels for a prolonged period -- its first hike since 2006.

While the move was widely expected, there were concerns that Fed hiking interest rate could result in increased outflow of foreign funds from emerging markets like India.

However, Indian markets shrugged off any negative impact and the benchmark BSE Sensex index actually gained over 300 points in today's trade, which analysts attributed to the markets having already factored in the Fed hike.

Reacting to the Fed move and its impact on India, Finance Minister Arun Jaitley said that the markets will now have to reconcile to the new situation as the suspense is over now.
The Fed move is widely seen as bolstering the value of the US dollar, a currency used by India and other nations to buy and sell most raw material including oil.

"We have to consider how the Fed is going to raise its rates going forward... We are very well-equipped to deal with any turmoil or volatility that may ensue as the Fed raises rates," Minister of State for Finance Jayant Sinha said here.

The rate hike signals the Fed's belief in the US economy having largely overcome the wounds of the 2007-2009 financial crisis.

Chief Economic Adviser Arvind Subramanian said India is "relatively well cushioned" and saw "quite minimal" volatility in the country's markets.

"India is very well-prepared. We have a fortressed balance sheet, sound fiscal management, and strong GDP growth. And therefore, we continue to be a bright spot in the global economy," Sinha said.

He further said the Finance Ministry is monitoring the currency markets on a "consistent basis because those tend to move most rapidly and in the most volatile manner when it comes to interest rate changes".

Maintaining its strong edge and upbeat momentum, the Indian rupee climbed to a two-week high of 66.51 against the US currency in mid-day trade following heavy dollar unwinding after the Fed's decision.

About the impact on stock markets, top exchange BSE's CEO Ashish Chauhan said the Indian markets are "well adjusted" to deal with the US rate hike and too much volatility is unlikely here in the next couple of months.

Stating that the US Fed action was on the excepted lines, Sinha said, "They were widely priced into all the markets and which is why, markets have rallied around the world."
He further said that the Fed has indicated a dovish approach towards gradually raising rates over next 12 months.

Economic Affairs Secretary Shaktikanta Das said the Fed's "accommodative" monetary stance is actually good for the emerging market economies and India does not expect any large selling by foreign funds.

"We are well prepared to deal with such external developments," Das told reporters. India is benefiting from low crude prices and overall macro-economic stability is also there, he added.

Earlier in a tweet, he said the end of "uncertainty and accommodative outlook (of Fed) for future will help policy makers in emerging economies."

"US Fed rate hike and reference to gradualism are on expected lines. India well prepared," he tweeted while adding that the Fed's confidence on recovery is good news for India's exports, especially for the IT sector.

Subramanian said the rate hike was widely anticipated and the "markets should have priced this in and there shouldn't be much of an impact of this per se (on markets)."

"As far as India is concerned, we are really well- cushioned. Inflation is coming down, fiscal deficit situation is very good, external situation is also robust. So, I think for all these reasons, impact on India would be very minimal," he added.

Subramanian further said that there should not be much volatility in the Indian markets due to this global development.

"The impact (rate hike) will happen depending upon what it signals about the future rate hikes. I think that is still a little bit open. Let us wait," Subramanian said.

It was a reluctant rate hike on part of the Fed as there were voices in the US saying that the economy was not strong enough to take such a step, he added.

DIPP Secretary Amitabh Kant said: "I think we need not worry. India is pretty well prepared. India will continue to grow irrespective of this. We are adequately prepared".