The markets of all countries around the world were waiting for an announcement from the United States’ central bank, the Federal Reserve.
That announcement has now come... The Federal Reserve has raised its interest rate by 0.25 percent. In a way, this announcement was expected by everyone.
Why is this announcement important?
Trade between countries around the world is conducted in U.S. dollars. Changes in interest rates affect the value of the dollar. This creates changes at the international level.
At present, due to the Federal Reserve’s announcement, the value of the U.S. dollar has strengthened.
When the value of the dollar strengthens, the value of other countries’ currencies declines. As a result, the prices of imports from other countries increase.
On the other hand, the prices of other goods exported to the United States will fall there. As a result, exports to the United States will be affected.
Other countries around the world will have borrowed from foreign banks only in U.S. dollars. As a result, their debt burden will also increase.
Since interest rates have been raised in the United States, large institutional investors will shift their investments to the United States.
The price of gold may fall from now on. The reason is that gold is an investment that does not yield interest. Since interest rates have now been increased, investments made in gold will be shifted to interest-bearing investments. Therefore, the chances of gold prices declining are high.
Okay... let’s look at what impacts this could have in India...
> The Indian rupee may weaken against the US dollar. Currently, the Indian rupee is trading at Rs. 95-97.
> Since festivals are lined up one after another in India, a drop in gold prices (if they do fall) could be favorable for the Indian people.
However, the central government has advised the people of India not to buy gold unless it is necessary to ensure foreign exchange reserves.
It has also increased the import duty on gold and silver by 15 percent to reduce gold imports. These two checks could affect the decline in gold prices in India.
> Due to the conflict in the Middle East, crude oil prices have risen in the international market. As the dollar strengthens, the price of crude oil imported by India will increase.
> Foreign investors are already pulling investments out of India. Now, because of factors such as the higher interest rates available in the United States and the decline in the value of the Indian rupee, foreign investors may withdraw even more of their investments.
> The Federal Reserve has now raised interest rates. The Reserve Bank of India is watching its actions and the impact on India.
Next, it will examine inflation, growth, and economic conditions in India. As a result, the Reserve Bank of India may also announce a change in interest rates.
If interest rates rise, the interest rates on loans will also increase.