SHORT EDIT: When will interest rates rise in US?
It was almost a decade back interest rates witnessed a rise in the US. Rates were hiked in June 2006 lastly. The benchmark federal funds rate stands at almost 5% points down the level when rates started to decline down to zero. Since, then markets worldwide have been thrust with” hot money”, making them addicted to it.
However, with the employment scenario on verge of significant improvement, it’s expected, also the minutes of the latest meeting of the US Federal Open Market Committee which were released earlier this week suggest, the world’s largest economy will observe re-working of the interest rate cycle.
With this happening, developing economies such as India, which have got used to easy money, have to re-visit the entire scenario.
They need to ask themselves two basic questions:
- Will they be able to hold out financial shocks if the capital flows begin a reversal trend, due to increase in interest rates in the US?
- The other is, what kind of opportunities will arise for exporters with the improvement in the health of the US economy?