BackEmerging markets, Asia relieved as US Fed leaves rates unchanged
With the Fed leaving the doors open for a rate hike in September, markets could see some pressure going ahead
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Mumbai: While Asian and emerging markets, including India, will heave a sigh of relief that US Federal Reserve left rates unchanged at its policy review last night, the US central bank has left the doors open for a rate hike in September.
Job gains were “strong" in June and indicators “point to some increase in labor utilization in recent months," the Federal Open Market Committee said in a statement Wednesday after a two-day meeting in Washington. The Fed held rates steady and continued to emphasize a gradual pace for rate increases.
The markets may be relieved in the near term, but they could see some pressure going ahead, closer to September.
“Even as Fed left rates unchanged, it did take into account the improvement in recent jobs data. They are seeing the economy improving further, which rings in a rate hike in September or December," said Vaibhav Sanghavi, managing director of Ambit Investment Advisors Pvt. Ltd.
Also Read: US Fed begins crawl toward rate hike as near-term risks diminish
Sanghavi pointed out, however, that the odds of a September rate hike have marginally increased, and Fed will also keep an eye on international economic affairs, apart from own domestic economy.
“Over the medium-term horizon, the dollar does get a bit stronger, and once we see a rate hike, we will see some impact on flows into the Indian market and other emerging as well as Asian markets," added Sanghavi.
Others shared the view.
“Normally rate normalisation in the Fed is seen as a risk to emerging market portfolio flows. This risk could materialise if the Fed does another hike in September. US dollar can strengthen thereby adding pressure on EM currencies," said Dhananjay Sinha, head of research at Emkay Global Financial Services Ltd.
US stocks closed marginally lower on Wednesday, as earnings and the price of crude largely set the tone for individual shares while investors digested the Fed decision.
Asian shares were mixed, as the focus has now turned on Bank of Japan’s policy decision due later this week. India’s Nifty futures in Singapore, traded flat.
While a September rate hike was looming, wealth managers tried to calm investors. “We have lived through this. So it is not going to be a very worrying event," said Sanghavi.
Bloomberg contributed to this story
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