Explained: Federal Reserve signals and Indian markets
The US Federal Reserve has hinted at the possibility of two rate hikes by 2023, leading to a fall in market indices. While inflation is a concern in India, and it remains to be seen how the RBI responds, market participants are not too worried about inflation if it comes alongside an economic rebound.
- Written By Sandeep Singh , Aanchal Magazine | New Delhi |
The Dow Jones Industrial index in the US fell 0.77% and treasury yields rose on Wednesday after the Federal Reserve indicated that there could be two rate hikes by 2023. In India, the benchmark Sensex fell marginally and the rupee lost over 1% against the dollar on Thursday. If the Fed changed its position in line with the progress in economic recovery and the inflation situation in the US, in India too there have been growing concerns on inflation.
The wholesale price index-based (WPI) inflation scaled a record high of 12.94% in May, pushed by higher fuel and commodity prices, and a low base effect. It also translated into retail inflation of 6.30% in May — a six-month high that breached the inflation target of 4 ± 2% set by the Reserve Bank of India. While it remains to be seen how the RBI responds, market participants feel that if inflation comes alongside a rebound in the economy, it should not be a big concern for investors.
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