Indian benchmark indices extend losing streak further on U.S. Fed rate hike

0 Comment(s)Print E-mail Xinhua, June 17, 2022
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MUMBAI, June 16 (Xinhua) -- India's benchmark indices on Thursday fell 2.1 percent and extended their losing streak for the fifth day to touch a 52-week low following the overnight rate hike by the U.S. Federal Reserve.

The Fed rate hike was more or less on expected lines and would mean two things for India, said Madan Sabnavis, chief economist of Bank of Baroda, a state-run lender.

"First, the investment flows will be impeded further with higher interest rates making U.S. markets more attractive than the Emerging Markets. Second, currency volatility will be here to stay and the rupee will move down," Sabnavis said.

The domestic currency rupee arrested its downfall on Thursday after touching an all-time low earlier this week.

"Due to inflationary pressures, interest rate hikes, and other global economic pressures, volatility is expected to be higher than usual this month," said Mohit Nigam, head of Portfolio Management Services of Hem Securities, a domestic stock brokerage house.

"The pain in the equity markets is likely to continue in the near term, as investment flows will be stifled further by increasing interest rates, which will make U.S. markets more appealing," he said.

The U.S. Fed rate hike of 75 basis points was the largest hike since 1994 and was a response to surging inflation. With another 50-75 basis points hike expected to follow up in the next two months, the action now moves to how India's central bank responds as the Indian bond yields on Thursday ended marginally higher at 7.62 percent.

"So far, the rupee has depreciated at about the median rate and is hence not out of sync with what is happening to other currencies. But our monetary policy will largely be driven by domestic inflation trajectory while keeping an eye on the fallout of Fed rate hikes," Sabnavis said.

The declining rupee has also been an outcome of continuous selling by foreign institutional investors, which have remained net sellers for the ninth consecutive month.

While India's central bank announced a 50-basis points rate hike only last week in its bi-monthly monetary policy meeting, it might hold an unscheduled meeting. Enditem

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