US Federal reserve Interest rate hike.Federal Reserve is their central bank of United states which is one of the largest central banks and various banks are also linked to it for financial assistance. Central bank of the US has changed the key policy rates and it has reduced the policy rate by 0.5 % which was not expected and this is going to affect the economy worldwide. The expected rate was 2% but it has made it to 0.5% which is going to affect the worldwide economy. Here are some of the reasons why it can affect the countries worldwide. US is one of the largest economy with GDP of about 17 trillion and most of the countries in the world are trading with US. If the economy has some changes introduced in it , then it is going to affect all the nations altogether. All those candidates who have been preparing for the bank exam and have their interview especially for the PO should know the details which will help them in the interviews. Questions related to changes in rates of federal reserve may be asked in the interview for PO and clerk both.
US Federal Reserve change in interest rates 2015-16 details
US Federal Reserve has increased the key rate by 0.25% and this is going to affect the economies through various ways.
According to a major news paper report, following will be the affects of the increase in key rates.
- US retail inflation is at 0.5% which is very low than Federal Reserve’s target of 2%.
- Unemployment rate has fallen to 5% which is at 40 year low and is expected to fall further.
- In the recent two quarters the growth of US GDP is 2.5%.
- Boost in the household spending, business investment, housing market
These factors are likely to affect the economies worldwide and here are some of the reasons for it. Candidates need to know the details which will help them during the interviews and also it is required for a clear understanding of the economic concepts.
As most of the economies have trade relationship and partnership with the US, this is going to affect their internal trading system. Traders are likely to liquidate their risky assets and deleverage themselves from emerging markets.
For the Indian companies it is going to come out as a pressure as globally dollar liquidity will diminish, corporates with external commercial borrowings are likely to face pressures for repayment.
The interest rate hike has the potential to make US bonds even more attractive, as foreign investors will pull out of emerging markets toward US bonds.
Due to this affect, Rupee which is already trading at about Rs 67 a dollar is going to reduce its value to a new low. This may put pressure on current account deficit of the government.
India imports about 80% of its crude oil requirement, and a depreciating rupee would increase fuel prices, which may add marginal pressure on inflation.
Key interest rates:
The Reserve Bank of India (RBI) going forward may become reluctant to reduce interest rates to counter inflation and stabilize the rupee.
Change in stock market:
An increase in interest rates in the US has the potential to force global funds to withdraw from emerging markets including India, which may cause the stock market to decline.
These are some of they details and highlights that candidates will need to know and they will have to learn these details for their upcoming interviews as well as exam.