Washington–As the global financial markets waited nervously, the US Federal Reserve kept its key interest rates unchanged, albeit for a short while, in a move that should bring some cheer when Indian markets open on Thursday.
The immediate reaction from India was that its markets remained attractive.
“The committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives,” said a statement by the Federal Open Market Committee after a much-watched, two-day meeting.
The committee said even though the US unemployment rate is little changed in recent months, the job gains have been solid, even as household spending has been growing strongly.
But business investment has remained soft, while inflation has continued to run below the 2 per cent long-term target.
“Against this backdrop, the committee decided to maintain the target range for the federal funds rate at 0.25 per cent to 0.50 per cent.”
But clearly, the indications were that there will be a rate hike later this year, even as future adjustments will be gradual.
Voting for the status quo were Chair Janet Yellen, Vice Chair William C. Dudley, and five members. But in an unexpectedly divided house, three others favoured an increase to a range of 0.5 per cent to 0.75 per cent. Majority prevailed.
Potentially, analysts said, the rate increase may come during committee’s December 13-14 meeting, since the one in November comes just ahead of the US presidential elections.
“The committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate — the federal funds rate (interest rate) is likely to remain, for some time, below levels that are expected to prevail in the longer run.”
Minutes after the US Federal Reserve statement, the Indian Finance Ministry said the country’s markets remained attractive. There were fears that a hike in US interest rates could trigger a flight of debt and equity investments away from emerging markets like India.
“US Fed leaves rates unchanged.Decision on expected lines,” Economic Affairs Secretary Shaktikanta Das tweeted.
“Overall approach very cautious.Indian markets will continue to remain attractive.”
The meeting of the US central bank’s key committee came well past the closing bell at Indian bourses. But it had a major bearing on investors sentiments.
Amid heavy selling pressure, the 30-scrip sensitive index (Sensex) of the BSE had closed on Wednesday with a loss of 15.78 points or 0.06 per cent on Wednesday, after some volatile trading.
The index touched a high of 28,689.36 points and a low of 28,462.33 points intra-day. (IANS)
