US Fed hikes interest rates to highest in 22 years; Sensex, Nifty make gains

With the US Federal Reserve hiked the policy rate by 25 basis points, in line with expectations while leaving the door open to further rate increases. The American central bank pushed rates to a range of 5.25 per cent to 5.5 per cent, their highest level since 2001. It further left the door open to further rate increases in the statement announcing the unanimous decision.

Addressing a press conference, Fed Chair Jerome Powell said it was “certainly possible” that the US central bank would raise at the September meeting if the data warranted. Analysts, however, do not reckon that there will more rate hikes.

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“With two months’ worth of data to come before the next Fed meeting we suspect evidence of slowing inflation and softer activity won’t make that (a rate hike) necessary,” ING Bank said in a note. Goldman Sachs too pointed out that Fed will be particularly focused on the inflation data, and that it expects the next few consumer price inflation reports to be soft.

Impact on market

In India, indices are expected to stay in the positive territory with the Fed move. Benchmark indices Sensex and Nifty continued their upward movement in early trade on Thursday, aided by sustained buying by foreign institutional investors and value-buying in bellwether stocks. The movement was also led by gains in heavyweights Reliance Industries on report of Qatar Sovereign fund’s interest in its retail arm and Larsen & Toubro on strong earnings.

However, some experts say a 25 bps rate hike will not have any significant lasting impact on the mood of the market. They opined that the market would have seen sharp gains had the Fed hinted that it is ready to end the rate hike cycle now. They said a 25 bps rate hike was already discounted by the market and will not trigger any market move.