India Well Prepared to Deal With US Rate Hike: Finance Ministry

Finance Ministry officials say India well prepared to withstand the impact of Federal reserve rate hike.

Finance Minister Arun Jaitley (3rd left) with Chief Economic Advisor Arvind Subramaniam (centre). (Photo: IANS)

The rate hike by the US Federal Reserve is in line with global expectations and its impact on India will be “very minimal” due to our strong macroeconomic conditions, Chief Economic Adviser Arvind Subramanian said on Thursday.

This rate hike was widely anticipated, so I think markets should have priced this in and there shouldn’t be much of an impact of this per se (on markets). As far as India is concerned, we are really well cushioned. Inflation is coming down, fiscal deficit situation is very good, external situation is also robust. So, I think for all these reasons, impact on India would be very minimal.

Arvind Subramanian

Subramanian further said that there should not be much volatility in the Indian market due to this global development.

“The impact (rate hike) will happen depending on what it signals about the future rate hikes. I think that is still a little bit open. Lets wait,” Subramanian said.

It was a reluctant rate hike on part of the Fed as there were voices in the US saying that the economy was not strong enough to take such a step, he added.

Economic Affairs Secretary Shaktikanta Das said on Thursday that India is well prepared to deal with the impact of the US Federal Reserve interest rate hike and the end of uncertainties will actually help policymakers in emerging economies.

The US Federal Reserve last night hiked interest rates by 0.25 percent. This is the first hike in about a decade, signaling a recovery in the US economy.

“End of uncertainty and accommodative outlook for future will help policy makers in emerging economies,” Das said.

He added that the Fed’s confidence on recovery is good news for India’s exports, especially for the IT sector.