Influence of Interest Rate Hike by US Federal on Indian Economy

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The United States Federal Reserve raised interest rate by 25 bps. This increase rate of interest will enhance momentary capital inflow in the US economy as this hike in interest rate in turn increase the rate of interest of government bonds, loans etc., hence returns would also be higher in US. This increase in cash flow of US federal will have repercussions for rising economies like India. Here are some possible instances to show how this will be meant for India in 2018:

Impact on Indian Economical structure: The rise in US interest rate will strengthen dollar and weaken Indian rupees which lead to dissuade RBI from cutting in Interest rates in India. Crude prices would be higher and import bills of India will also goes up due to weaken Rupees which will put pressure on the finances of India. Prices of goods will be higher in India which would bring inflation within the country.

Negative Effect on growth of Indian Market: This will weaken Rupee in comparison to US dollars. India would face burden of more payment in US dollars for trading in global market.   Interest hike in US lead to yields in dollar which provides more stability to the global investors; hence many investors in India could turn to US to get better returns and investment stability.  The dollars outflows will shift to US from India and the rupee value in India would comes under pressure.

Pressure on Import Bills/international borrowings: A strong dollar will put burden on finances of the country as the imports bills would become higher than earlier. Similarly, the companies or firms will suffer who owed loans in foreign currency, now they have to repay it in high prices of dollar.

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