Chief Economic Adviser Arvind Subramanian on Thursday said India is well-positioned to absorb the impact of the United States Federal Reserve’s interest rate hike, PTI reported. Subramanian said that while the Federal Reserve’s decision to raise its key policy rate would bring volatility in emerging market economies, India would be “less affected than other countries”.
“There will be some reassessment and money will flow from emerging market[s] to [the] US at least for some time,” he said. “But in that, we will be less affected than other countries,” he said at an event organised by the Associated Chambers of Commerce of India in New Delhi. The Reserve Bank of India had also accounted for a potential interest rate increase by the US Federal Reserve in its decision earlier this month to leave its policy rates unchanged, Subramanian said, adding that India had a “strong macro economy”.
Referring to the rise in crude oil prices following a deal between members and non-members of the Organisation of the Petroleum Exporting Countries, Subramanian said they would not “surge to level...difficult for [the] Indian economy to handle”. There is a natural ceiling on how high crude prices will be able to rise because of strong competition from shale oil and natural gas, he said.
Subramanian’s comments came even as Indian stock markets closed lower on the first day of trading after the Federal Reserve’s rate hike was announced on Wednesday. Analysts said markets were likely to “take some time to absorb the Federal Reserve’s first interest rate rise this year”. Following the announcement of the rate increase, Federal Reserve Chairperson Janet Yellen said Donald Trump’s election had put the central bank under a “cloud of uncertainty”. “The rate increase should be understood as a reflection of the confidence we have in the progress the economy has made,” she said.