Sensex up by 309 points despite US Fed rate hike

RSTV Bureau

sensexThe US Federal Reserve’s hike in interest rates did not have much of an impact on the Indian markets and the rupee. In fact, Sensex shot up 309.41 points to close at 25,803.78. Nifty too saw a jump of 93.45 points and ended the day at 7,844.35.

The rupee too traded around 66.64 per dollar, doing better than its Wednesday’s closing figure.

Not just Indian markets, other Asian markets as well the European markets gave a thums up to the Fed rate hike.

On Wednesday night the US Fed increased the interest rate by 0.25 per cent, the first in almost 7 years signaling that the US economy has more or less overcome the losses of the financial crisis of 2007.

“The Federal Open Market Committee decided to raise the target range for the federal funds rate by one quarter percentage point bringing it to one quarter to one-half per cent,” US Federal Reserve Board Chairwoman Janet Yellen told reporters at a briefing on Wednesday.

This hike in interest rate marks the end of a long period during which the Federal Reserve funds rate was held near zero to support the recovery of the economy from the worst financial crisis and recession since the Great Depression, Yellen explained.

It also recognises the progress that has been made toward restoring jobs, raising incomes and easing the economic hardship of millions of Americans.

“Room for further improvement in the labor market remains and inflation continues to run below our longer run objective. But with the economy performing well and expected to continue to do so, the committee judged that a modest increase in the federal funds rate target is now appropriate. Recognising that even after this increase, monetary policy remains accommodative,” Yellen said.

According to the Fed, the process of normalising the interest rates is likely to proceed gradually, but the future policy actions will depend on how the economy evolves relative to their objectives of maximum employment and two percent inflation.

Yellen told reporters that the median projection for real GDP growth is 2.1 per cent for this year and rises to 2.4 per cent in 2016.

“Thereafter, the median growth projection declines toward its longer run rate. The median projection for the unemployment rate in the fourth quarter of this year stands at 5 per cent, close to the median estimate of the longer run normal unemployment rate,” she explained.

“Domestic spending that accounts for 85 per cent of aggregate spending in the US economy has continued to hold up. It’s grown at a solid pace,” she said.

Fed also approved a .25 percentage point increase in the discount rate for primary credit, to one per cent.

“Based on the extensive testing of our policy tools in recent years, the committee is confident that the normalisation process will proceed smoothly,” Yellen said.

(With inputs from PTI)