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RBI's policy unlikely to be impacted by Fed rate hike

The US Fed hike is as per the expected lines, which raised its benchmark interest rate for the second time in three months and there is forecast of two additional hikes this year, experts said.

PTI|
Updated: Mar 16, 2017, 04.16 PM IST
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NEW DELHI: The US Fed rate hike is no surprise and may not impact RBI's policy next month as it had already factored in the global development and will be guided by local factors, said experts.

The US Fed hike is as per the expected lines, which raised its benchmark interest rate for the second time in three months and there is forecast of two additional hikes this year, experts said.

"RBI will not cut interest rate... rate cut cycle is over as far as RBI is concerned," Crisil Chief Economist D K Joshi said.

RBI is expected to stay put on the repo rate in its upcoming monetary policy next month because of rise in inflation -- both wholesale and retail.

The monetary policy review is due on April 5-6.

Wholesale inflation soared to a 39-month high of 6.55 per cent in February and retail inflation inched up to 3.65 per cent due to higher food and fuel prices, justifying the RBI's move to hold rates at the last policy meet.

Last month, the RBI left interest rates unchanged for second time in a row, waiting for more clarity on the inflation trend and impact of demonetisation on growth even as it hinted at no interest rate cut in immediate future by shunning its long-held "accommodative" monetary policy stance.

RBI kept the repo rate unchanged at 6.25 per cent, the lowest in 6 years.

According to Rupa Rege Nitsure, Group Chief Economist, L&T Finance Holdings, the rate hike by Fed yesterday is no surprise and going forward, there will be further hikes.

This has already been taken into account by the RBI. So, it will be local factors for the future policy rate consideration, she said.

Chief Economic Advisor Arvind Subramanian said Fed rate hike was very much anticipated and will have very little impact on India.

He further said three rate hikes are already factored in and India is well-cushioned to absorb any future rate hike.

"Now, a lot will depend on our own economy and what happens domestically. If we can keep up our stability, growth and everything, I think this is something that we should be able to manage without much discomfort," he said.

As per the SBI Ecowarp, the impact of Fed rate hike on India will be muted partly because the results of UP elections have altered view of country risk for India beyond 2019.

Though the currency can appreciate in the short term, the rupee is expected to settle at 66.5-67.5 per dollar at the end of 2017, it said.

"However, this view is subject to position taken by other central banks in response to the US Fed rate hike. The fallout of present rate hike is already divergent with Bank of Japan maintaining a status quo and People's Bank of China indicating a tightening stance," it added.
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