The 75 basis point hike in the Bank rate by the US Federal Reserve last week to tame the inflation ruling at three-decade high in the US has triggered withdrawal of Foreign Portfolio Investments (FPIs) that plunged the Indian markets.
The dollar has become profitable and investors are adopting a ‘flight-to-safety’ approach. The BSE sensex alone has lost about 2575 points in the last four sessions.
A strong dollar has resulted in almost every currency including the Indian rupee dropping sharply in value against it. The rupee plunged to a new all-time low of 81.63 yesterday against the US dollar despite RBI offloading around $90 billions from its forex reserve that has fallen below $550 billion, the lowest in nearly two years.
The downtrend is likely to continue for the rupee until the inflation is controlled. Even though the rupee has weakened the least against the dollar, the fall seems unstoppable with more pressure expected in the coming weeks, as the Fed is expected to raise the rate above 4.5% from the present 3% to 3.25%.
The pressure of a strong dollar has compelled all major economies to raise their bank rates to defend their currencies and to contain the raging inflation due to worsening fuel and food crisis in the wake of Russian invasion of Ukraine.
Though domestic inflation shows signs of moderation, it’s not a consolation. Like most western economies, the RBI has too raised the repo rate by 140 basis points since April this year. But RBI needs to increase it further at least by 50 basis points to keep the inflation under check that will also provide some respite to the sliding rupee.
But every cloud has a silver lining. Despite adverse external factors, the GDP expanded 13.5% in the first quarter this year. Indian economy is set to grow at over 7% this year, the highest among all major economies in the world, despite difficult global scenario.
GST receipts of over Rs 1.40 trillion every month since April this year indicate return to growth after the pandemic. The pent-up demand is driving consumption. Service sector has seen a strong bounce back that will further go up in this festival season.
Though the bank credit offtake has been a bit slow, the retail and micro and small business have picked up considerably. Fresh corporate investments and a number of high value projects are also in the pipeline that will further boost the economic activities.
However, rising interest rates, uneven monsoon, and decelerating global growth compel us to keep our fingers crossed.
–Kaushal Kishore
Kaushal Kishore 
Makes things quite clear 👍👍
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Thank you for reading and appreciating 🙏💐
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Yes Sir,
The tumbling of the share market and the Global economic situation are big concerns. The Russian war also made the situation worst, But there is a silverling in our economy to improve that is expected. You have done a genuine analysis of the Global economy. Thanks for sharing useful information ,Sir.
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Thank you, Verma ji for your considered view. You’re right that there is hope for us despite the situation is grim.
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I don’t think, Kaushal, if I am in the right state to fully appreciate your professional analysis but before I can get better let me tell you what I did grasp;
no matter what the global recession dictates, my favorite country will overcome the problems, as always, as this is what the Indian nation was capable of for millions of years, so now is no exception.
Joanna
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Thank you, Joanna, for stating what I missed to mention. When the whole world has been gripped by fear of recession, India remains untouched. It shows the resilience our economy has. Thanks again for your kind words and good wishes for your favourite country.
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I am so glad that you liked my comment!
Joanna
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Your comments are always worth noting.
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Thank you!
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Interesting read. Very informative, KK.💕
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Delighted to know that you think so. Thanks a lot, Grace 😊💖
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My pleasure 💕
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Rising rates have indeed affected many other currencies and markets. England is a prime example. They do have a lot of government mismanagement to deal with as well but the GBP is now at the lowest point since it went decimal in the ealry 70s. Yipes! I sent a text to my son to ask what currency he is being paid in on the project he is currently working on. He lives in London but is currentlyworking in Eastern Europe. He said he is paid in Euros. That’s a bit better.
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Yes, Anne, despite the fact that the Bank of England has also raised interesting rates seven times from 0.1% to 2.25% during the last ten months. But I think this situation prevails almost everywhere. That’s why people are in the group of recession fear. I’m glad that your son is being paid in Euro. Thank you so much for sharing your thoughts.
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The high inflation in the United States has been fueled by excessive government spending and politicians who refuse to admit that we are in a recession. The housing market has tanked, fuel prices are rising again, food prices are excessive in relation to value, retail stores are suffering, and the GDP is down. Layoffs are beginning to occur. On top of high inflation and high interest rates, the government wants to raise taxes. High prices, high interest rates, and high taxes are a recipe for disaster. Since we are part of the global economy, the whole world is affected when one country fails. I hope India avoids making the mistakes that we are experiencing here in the United States.
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You have depicted a grim situation. But Dollar rules the world. If anything happens in the US, it has direct bearing on the whole world. Rates and taxes have been hiked here too. Unfortunately we have some governments and political parties that lure people to vote by giving freebies. That’s the only danger. Otherwise our economy, despite certain setbacks like covid, is running satisfactorily. Thank you, Dawn, for sharing your thoughts.
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