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How Federal’s Decision On US Interest Rate Will Effect Indian Market


The Federal has kept the US interest rate unchanged and this has created a buzz in the Indian Market.How it will effect the indian market? Let's have a glimpse of the same.

The BSE Sensex has increased by over 308 points or 1.1% at 28,830.50 and the NSE Nifty rose by 113 points or 1.3% to 8,890.10 in early trading today. The US interest rate has been left unchanged for now and it can be changed towards the end of 2016. For now,we can only expext one interest rate hike instead of two. The Fed has left its overnight lending rate at 0.25-0.50% since December 2015.

So these lower interest rates mean that our market will still remain attractive to foreign investors. Till now FIIs have invested Rs 45,584 crore in India's equity markets versus Rs 17,808 crore in the whole of 2015. This latest move by the US central bank will now set the tone for stock markets worldwide including that of Indian markets in the coming months.

Now, what will happen to India as the US has kept it's interest rates unchanged?

1.The Indian Market will remain attractive for investments.

2.This decision of Federal Reserve regarding US Interest rate in its Wednesday meeting will impact India's foreign institutional investor inflows, stock markets, exchange rates and of course the monetary policy.

3.The Foreign Institutional Investor(NYSE:FII) Flows will not change and continue in the same way.

4.As far as its impact on the country's exchange rate is concerned, Care Ratings economists have stated that the rupee will revert to normal and will remain steady against the US dollar and with the steady FII inflows the volatility in the market will be reduced.

5.Things like outflow of foreign currency non-residential (OTC:FCNR) bank deposits would tend to be the driving factor for us.

6.This decision to hold the interest rates will give some space to RBI to raise interest rates which is less likely to affect the country's foreign portfolio investor (NYSE:FPI) inflows.

Will there be an hike in US interest rate ?

Two monetary Policy meetings will be held this year in November and December. The central bank's November meeting is less likely to change or increase the rates as it will be held before the US elections, cited the Care Ratings economists.The bank is likely to raise interest rate in December this year, they added.

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