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Fed raises interest rates, cites US economic recovery
17
Dec '15
For the first time in nearly a decade, the US Federal Reserve has raised its key interest rate. The US central bank's policy-setting committee raised the range of its benchmark interest rate by a quarter of a percentage point to between 0.25 per cent and 0.50 per cent, ending a lengthy debate about whether the economy was strong enough to withstand higher borrowing costs.

The move was widely expected. The rate hike though a small one, is seen as a sign of how much the US economy has healed since the 2007-2008 financial crisis.

The central bank believes the US economy is strong now and no longer needs crutches. The announcement came at the conclusion of the crucial two-day meeting of the policy making federal open market committee (FOMC).

"The Committee judges that there has been considerable improvement in labor market conditions this year, and it is reasonably confident that inflation will rise over the medium term to its 2 per cent objective," the Fed said in its policy statement, which was adopted unanimously.

In India, the Finance Ministry said the US Fed rate hike is on expected lines and its impact on India would be minimal.

“US Fed rate hike and reference to gradualism are on expected lines. India well prepared. US Fed policy: End of uncertainty and accommodative outlook for future will help policy makers in emerging economies,” Economic Affairs Secretary Shaktikanta Das said in a series of tweets. He went on to add that the US recovery is good for Indian exports, particularly those from the IT sector.

Last week, Reserve Bank of India Governor Raghuram Rajan had said that he expected the Fed to raise interest rates by up to 25 basis points from near zero. He also said that the RBI is ready to face up to volatility as panic withdrawals by overseas investors raise the prospect of dollars getting sucked out of the market rapidly and in large quantities.

A depreciating rupee will make imported goods costlier. It could also negate the gains from cheap crude oil which is currently at an 11-year low and which has benefitted India that imports more than 75 per cent of its oil needs. A weak rupee triggered by a dollar outflow, however, could offset this as it could increase the landed cost of oil shipments in local currency terms. (SH)

Fibre2Fashion News Desk – India

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