RBI's Strategy In Light Of US Fed's Rate Hike, What's The Road Ahead?

The 0.25 per cent hike in interest rates by the US Fed was on expected lines, analysts said on Thursday, expecting its Indian counterpart to take a balanced view in its policy formation going forward.

Naveen Kulkarni, chief investment officer of Axis Securities PMS, said the action in the US was on expected lines and added that the commentary was neutral.

“Considering the massive rate hike cycle in place and inflation challenges reducing, more rate hikes are not needed at this juncture. Further rate hikes could be detrimental to economic growth prospects raising the chances of a hard landing,” he added.

Edelweiss mutual fund’s managing director and chief executive Radhika Gupta said as the actions were on expected lines, US and Indian markets showed resilience.

However, the Fed statement keeps the door open for future rate hikes, she added.

Private sector lender Kotak Mahindra Bank’s arm Kotak Cherry’s chief executive Srikanth Subramanian said this is the 11th hike in the last 12 policy meetings and another hike is on the cards.

“With crude prices inching up again due to supply cuts and expected optimism in China’s recovery, it will be important to track the inflation prints for July and August,” he said, adding that from the Indian context, increasing vegetable prices due to erratic monsoon and soaring crude will add to inflationary pressures.

Among the commodity players, Colin Shah, the managing director of Kama Jewelry, said the expectation of policy easing has led to a fall in the dollar index and thereby strengthened gold.

“The rally in the past couple of days is expected to continue albeit at a slower pace,” he said, adding that movement of the yellow metal prices domestically will largely be guided by the economic data in the West and the magnitude of the recession in the US.

Rohit Arora, the chief executive and co-founder of Biz2credit and Biz2x, said the potential risk of a recession can adversely impact Indian exports, and rising oil prices present additional challenges. There is a need to be vigilant as the rupee may come under pressure due to the two.

Fintech Appreciate’s chief executive Subho Moulik said the hike will force central banks to bump up interest rates to avoid currency depreciation risk.