Event Update - US Fed raises interest rate by 0.25% - ICICI Direct

Key Highlights

- The US Federal Reserve decided to raise interest rates by 25 bps to a range between 0.25% and 0.5%

- The median projection for the appropriate level of the federal funds rate is 1.9% at the end of this year, a full percentage point higher than projected in December. Over the following two years, the median projection is 2.8%

- Federal Open Market Committee expects to begin reducing its holdings of treasury securities, agency debt and agency mortgage-backed securities in a coming meeting

Impact on Dollar Index, rupee

The Dollar Index may continue its positive bias as the US Fed decided to raise interest rate by 25 bps to a range between 0.25% and 0.5%, the first rate increase in three years. Most policymakers are expecting the federal funds rate to range between 1.75% and 2% by the end of 2022. To achieve this, central bank has to raise interest rate by 0.25% in the remaining six policy meetings. In 2004-06, the Fed raised rates 17 times whereas, in 2015-18, nine rate hikes were witnessed. Additionally, Fed Chair Jerome Powell said the Fed could finalise a plan to shrink its $9 trillion asset portfolio at its next meeting. As long as the Dollar Index sustains above 96 level it may rally till 100.5. US$INR likely to respect the resistance of 77.5 and appreciate back till 74.5 level in coming months despite expectation of a strong dollar as India is in a better position compared to other emerging markets and has significant foreign exchange reserves. Further, market sentiments improved on hopes of progress in peace talks between Russia and Ukraine along with a decline in crude oil prices.

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Link to the report

Source : Equity Bulls

Keywords

USFed InterestRate Increase EventUpdate ICICIDirect