Fed’s signal of more rate hikes not a big risk factor for economy: CEA

CEA sees no major impact from Fed’s signal of more rate hikes

Chief Economic Adviser V. Anantha Nageswaran said he does not anticipate a big impact on the Indian economy after the U.S. Federal Reserve signalled the possibility of further rate increases later in the year in the wake of its decision on Wednesday to pause its monetary tightening and keep the benchmark interest rate unchanged.

Observing that U.S. financial markets had initially factored in rate cuts by the end of this year, the CEA said, they would now have to push back the rate cut expectations to 2024.

“To that extent there will be an impact on the financial markets, which would spill over to the global markets,” Mr. Nageswaran noted in a media interaction on Thursday, adding,“But I don’t think [it is] such a big risk factor for us to worry about.”

He said the U.S. market had remained buoyant despite a 500 basis points increase in interest rates. “There has not been a bad market for a while; this remains a risk factor for the global economy,” he added.

On India’s inflation, Mr. Nageswaran said the Reserve Bank of India’s expectation was that it would be well behaved in the 2-6% range, or closer towards 4% rather than 6%. “That is something we also anticipate”.

On the monsoon and concerns about a possible El Nino effect, he said the impact was unlikely to be big as there was adequate storage of water, availability of seeds and fertiliser stocks.

For FY24, the projection for real GDP growth is 6.5%, a figure backed by both the RBI and the Ministry of Finance, the CEA said.