The US Federal Reserve on March 20 indicated there might not be any more interest rate hikes this year will. The development is in stark contrast to the central bank’s previous stance which indicated two possible hikes in 2019.
“Patient means that we see no need to rush to judgment. It may be some time before the outlook for jobs and inflation calls clearly for a change in policy,” said Jerome Powell, Chairman of the Federal Reserve in a pres conference.
While the policy statement received positive feedback from the Wall Street, let us delve into what it means for the Indian financial market.
The decision means no more strengthening of dollar against the other currencies. US dollar, among other major currencies, plummeted following the March 20 policy decision.
This may further benefit rupee, which is currently on a roll amid strong foreign capital inflows.
“This is positive news for the rupee which will appreciate on this score. However a lot depends on how the other factors turn out such as current account deficit and capital flows. Movement in oil prices would hold the clue here,” said Care Ratings in its latest report.
This also augurs well for FPI flows into India, especially in debt, and the present wave of positive inflows is expected to continue for some more time.
With higher inflows into the country, Indian stocks may do well as the lure of riskier Emerging Market assets grows.
The policy decision may open a window for Indian companies to raise funds through external commercial borrowings.
“Lower interest rates in the US would be useful for ECBs where companies can continue to leverage this market under a stable forex currency regime. This window can be used more by Indian companies depending on the interest rate spread between foreign and Indian markets. As interest rates in India are poised only downwards, overall cost of funding may be expected to go down,” said Care Ratings.
The Indian central bank, Reserve Bank of India, will now take a decision on its benchmark rates keeping in mind the US Fed decision.