- 02 Feb 2023
- ICICIdirect Research
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US FOMC MEETING IN LINE WITH MARKET EXPECTATIONS
News: US Federal Reserve raised its interest rate by quarter percentage point taking it to the range of 4.5%-4.75%. It has increased rates by 25bps followed by 6 larger consecutive increases to control soaring inflation. Fed signaled plans to keep raising interest rates to combat inflation possibly in smaller increments and pushed back the idea that Fed would consider cutting rates this year. Policymakers were found agreeing to slow rate rises to gain more time to evaluate the effects of aggressive rate hikes done in the previous meetings on economy. Powell acknowledge that the inflation data received over the past 3 months showed a welcome reduction in the pace of price increases, but they will need more evidence to get the confidence that inflation is on a sustained downward path. After the FOMC meeting Dollar and Yields slipped. US 2 year yield most sensitive to Fed policy expectations tumbled to 4.11% and DXY declined near 101.0 levels.
Views: Rupee looks to appreciate back to 80.80 levels in coming days on weakness in dollar and as Indian government in its Union budget said it will target a fiscal deficit of 5.9% of GDP for 2023/24 compared to 6.4% for the current fiscal year and also aims to achieve fiscal deficit of 4.5% of GDP by 2025/26. Additionally, government measures to curtail imports of precious metals by raising custom duties and announcing no capital gains on conversion of physical gold to Electronic gold receipt and vice versa will help in reducing import bill. Dollar is showing weakness as US Fed slowed down the pace of rate hike and signaled it was on track to do so again in March meeting. Further, Fed Chairman Powell said we can now say for the first time that the disinflationary process has started