Pressure on rupee, stocks as US Fed hikes interest rate by 75 basis points

New Delhi, June 15

The US Federal Reserve raised its main interest rate by 75 basis points—its biggest increase in 28 years ndash; to bring inflation under control even if it is at the expense of slower growth and a higher unemployment rate.

The upshot of the move in India will be renewed pressure on the rupee as well as the stock market when trading opens on Thursday. However, several analysts believe the markets have already factored in the possibility of the Fed raising interest rates by 75 basis points.

The US dollar immediately began gaining after the Federal Reserve raised its target interest rate and the greenback was already up 0.35% against six major currencies. The rupee, being weaker than the six currencies, will be unable to withstand the pressure to sell.

It will also be accentuated by foreign portfolio investors selling shares to invest in the US market. US Stocks have climbed with bonds soon after the announcement. The Samp;P 500 has rebounded and treasury two-year notes have erased their advance.

The sole cheer for India is that oil fell as there are signs of demand slipping after the announcement.

The Nifty had opened flat on Wednesday and traded in a narrow range. This was in tune with the global markets which declined slightly and then stabilised after a sell off frenzy earlier this week. Some cheer was due to China reporting better production data amidst reports that the lockdowns were eased in several megacities.