Fed Funds rate rises by 25 bps, marking its seventh consecutive hike this fiscal
1. Federal Reserve raised its benchmark interest rate by 25 bps in its monetary policy meeting in February’23.
The fed funds rate now stands in a range of 4.5 to 4.75%.
2. After peaking to levels last seen during the dot com crash (7.08%), average 30-year mortgage rates havebeen witnessing a consistent decline. Mortgage rates in January’23 were recorded at 6.13%.
3. CPI for December’22 stood at 6.5%. While inflation seems to be easing on a month-on-month basis, it remains at 4.5% above the Fed’s upper tolerance limit at 2%. Inflation at this rate was last seen in 1982.
4. Job gains have been robust in recent months, with unemployment rate at 3.5%, down from 3.6% in November’22 and 3.7% in October’22.
Market reaction
Equity
Equity markets, looking forward to this month’s meeting in anticipation of a pause in rate hikes, tumbled post the rate hike announcement. Dow Jones declined more than 300 points yesterday.
Sensex opened 200 points lower than its previous close yesterday.
Japanese Nikkei 225 opened 100 points lower than its previous close yesterday.
Debt
The U.S 10 Year G-Sec declined 0.21% from its previous close yesterday.
The India 10 Year G-Sec declined from 7.33% last week to 7.29% today at 10:30 am.
The Indian call money rates increased from 6.10% the previous day to 6.25% today.
FX Markets
The Indian call money rates increased from 6.10% the previous day to 6.25% today.
The USDINR rose from 81.41 last week to 82.15 today at 10:30 am today.
Policy rate actions across other major economies :
| Country | Policy Rates in FY23 (%) | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Emerging | April | May | June | July | Aug | Sep | Oct | Nov | Dec | Jan | Feb | ||
| China | 3.70 | 3.70 | 3.70 | 3.70 | 3.65 | 3.65 | 3.65 | 3.65 | 3.65 | 3.65 | 3.65 | ||
| India | 4.00 | 4.40 | 4.90 | 4.90 | 5.40 | 5.90 | 5.90 | 5.90 | 6.25 | 6.25 | 6.25 | ||
| South Africa | 4.75 | 4.75 | 4.75 | 5.50 | 5.50 | 6.25 | 6.25 | 7.00 | 7.00 | 7.25 | 7.25 | ||
| Brazil | 11.75 | 12.75 | 13.25 | 13.25 | 13.75 | 13.75 | 13.75 | 13.75 | 13.75 | 13.75 | 13.75 | ||
| Developed | |||||||||||||
| EuroZone | 0 | 0 | 0 | 0.50 | 0.50 | 1.25 | 2.00 | 2.00 | 2.50 | 2.50 | 2.50 | ||
| U.S* | 0.50 | 1.00 | 1.75 | 2.50 | 2.50 | 3.25 | 4.00 | 4.50 | 4.50 | 4.50 | 4.75 | ||
| U.K | 0.75 | 1.00 | 1.25 | 1.25 | 1.75 | 2.25 | 2.25 | 3.00 | 3.00 | 3.50 | 3.75 | ||
*Upper range of Central bank interest rates
Likely action by RBI
RBI raised its policy repo rate by 35 basis points in its Dec’22 meeting. Although retail inflation is slowly inching below the RBI’s upper tolerance limit, future course of monetary policy stands affected by global growth and monetary tightening across other advanced economies. We expect a further rate hike of 25 bps in the upcoming MPC meeting.
TruQuest is knowledge series launched by TruBoard Partners providing succinct updates and views on:
- Liquidity outlook
- India’s macro economic view
- Trends within the infrastructure, Real Estate and Renewable Energy sectors
- Impact analysis of new regulations and policies on lending and capital flow
Team:
Nandkumar Surti, Co-Founder
Ria Rattanpal, Research Associate
Komal Chavan, Marketing Associate
Author:
Ria Rattanpal, Research Associate
Komal Chavan, Marketing Associate
Disclaimer
The data and analysis covered in this report of TruQuest has been compiled by TruBoard Pvt Ltd and its associates (TruBoard) based upon information available to the public and sources believed to be reliable. Though utmost care has been taken to ensure its accuracy, no representation or warranty, express or implied is made that it is accurate or complete. TruBoard has reviewed the data, so far as it includes current or historical information which is believed to be reliable, although its accuracy and completeness cannot be guaranteed. Information in certain instances consists of compilations and/or estimates representing TruBoard’s opinion based on statistical procedures, as TruBoard deems appropriate. Sources of information are not always under the control of TruBoard. TruBoard accepts no liability and will not be liable for any loss of damage arising directly or indirectly (including special, incidental, consequential, punitive or exemplary) from use of this data, howsoever arising, and including any loss, damage or expense arising from, but not limited to any defect, error, imperfection, fault, mistake or inaccuracy with this document, its content.