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ICICIdirect Research Posted on 03:50pm 23-Sep-2022

Event Update - US Fed raises interest rate by 75 bps for third consecutive time.

Key Highlights

  • The US Federal Reserve decided to raise interest rate by 75 bps to a range of 3.00-3.25% and signalled intentions to keep monetary policy tight. Federal Open Market Committee decided to continue its balance sheet reduction as announced in May 2022
  • US Federal Reserve officials project interest rate to rise to 4.4% by the end of this year and 4.6% in 2023. The US Federal Reserve slashed its growth forecast and expects inflationary pressure to prevail this year

 

Impact on Dollar Index, rupee

The Dollar Index may continue with its positive bias as the US Fed decided to raise interest rate by 75 bps, for a third consecutive month and signalled that it would continue to lift rates this year at a most rapid pace to combat inflation, which is running hot. Additionally, the US Federal Reserve announced it would continue with its plan to shrink its $9 trillion asset portfolio, which plays an important role in firming stance of monetary policy. Additionally, In this year two policy meet are pending, we may see a 75 bps rate hike in November meet and 50 bps in December meeting. Additionally, other major central banks across the globe are likely to lag behind in tightening monetary policy high inflation and dwindling economic growth. As long as the Dollar Index sustains above 107.50 level it may continue to rally till 113/114 levels.

 

US$INR as long as it sustains above 79.00 it is likely to depreciate till 81.50 in coming month amid strong dollar and concern over widening of the trade deficit. However, possible RBI  intervention in forex market to curb volatility may prevent sharp rupee depreciation. Additionally, FIIs have turned net buyers after a long period of time. Moreover, the market expects inflows up to $30 billion in 2023-24 if JP Morgan includes Government of India bonds in its index, which should help the rupee to show continued resilience.

 

For details, click on the link below

https://www.icicidirect.com/mailimages/IDirect_Fed_EventUpdate_22Sep22.pdf