US Fed Reserve hikes key rate by 0.25 per cent after 7-year gap
US Fed Reserve hikes key rate by 0.25 per cent after 7-year gap
The domestic equity markets — the Sensex and the Nifty — staged a smart rally on Thursday posting their fourth straight session of gains amidst a broad-based rally in global stocks after the US Federal Reserve raised interest rate for the first time in nearly a decade, which signalled that the world’s largest economy is on a strong recovery path.
The US Federal Reserve on Wednesday raised its Federal Funds Rate — the US version of repo rate — by 25 basis points ending its zero interest rate policy. Investor sentiment got a further boost after the Fed said that it would continue with its accommodative monetary policy and any further hike in interest rate would be ‘gradual’ and ‘data dependent’.
“The committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run,” US Fed said after its two day policy meeting.
According to Bloomberg, US policy makers have also forecasted 1.375 per cent as an appropriate rate at the end of 2016, implying a one per cent increase in the next year.
Fed chairperson Janet Yellen, however, said that markets and officials would be well prepared for the next move. “We’ve made a commitment to emerging market policymakers that we would do our best to communicate as clearly as we could about our policy intentions to avoid spillovers that might result from abrupt or unanticipated policy moves,” she said.
Mirroring the trends in global markets, the Sensex gained 309.41 points or 1.21 per cent to close the day at 25,803.78 while the Nifty ended the day at 7,844.35 gaining 93.45 points or 1.21 per cent. Most of the Asian equity indices closed the day with strong gains. While Japan’s Nikkei 225 climbed 1.59 per cent, Shanghai Composite, Taiwan Weighted and Jakarta Composite gained 1.83 per cent, 1.65 per cent and 1.62 per cent respectively. Equity markets across Europe also registered impressive gains on Thursday.
“There are a couple of positive things that came out from the Fed statement. First, they stated that the further tightening would be slow and gradual. A further rate hike would also depend on the pace of global growth. Secondly, they have committed to maintain the balance sheet size at the same level for an extended period of time. My sense is that the US dollar would soften a bit in coming days, which is good for emerging market currencies and their stability,” said Andrew Holland, CEO, Ambit Investment Advisory.
According to the provisional data, foreign portfolio investors purchased shares worth Rs 638.01 crore.
“The Fed decision has finally ended the uncertainty, which had enveloped the global financial markets over the last couple of months that had led to high bouts of volatility in equity, bond and currency markets. So this came as a huge relief for the equity market,” said Ambareesh Baliga, senior market analyst.
