INSUBCONTINENT EXCLUSIVE:
Mumbai: India's interest rates are likely to remain elevated and may even squeeze out domestic liquidity as a fallout of the increase in
the US Fed rate, said India Ratings' Anand Bhoumil.
Bhoumil is Chief Analytical Officer of India Ratings, a subsidiary of the Fitch Group
Analysts are expecting the interest rates in the US to go up to 3.5 per cent
"This will be accompanied by a significant quantitative tightening," according to Brian Coulton, Global Economist, Fitch Ratings
Quantitative tightening is a monetary policy process where the central bank drains money from the system
The US Fed is letting nearly $40 billion worth of bonds maturing every month, without replacing them, which drains the money out of the
system leaving the Fed an option to find new buyers for its debt, according to Bloomberg
Fitch says that liquidity management has emerged as a priority, particularly for the growing non-bank finance companies that are vulnerable
The other worry for the Indian economy is a falling rupee
The ratio of emerging market forex volatility to G7 currencies has surged to levels last seen in early 2000s
The rating agency thinks these factors will continue to weigh on capital flows to emerging markets, contributing to tighter financial
Adding to these volatility is the tension involving the US and Iran and China
"Headwinds from global trade tensions are rising rapidly, and it is possible that trade growth may start to diverge more dramatically from
For India, the need for foreign capital flows has led to the uncertainty in the currency market
