Fed Rate Hike Casts Shadow Over India's Economy

The US Federal Reserve is expected to raise its policy rate by 25 basis points tonight, taking the target range to 3.75%-4%. This decision comes at an awkward time for India, where the rupee is hovering around 96 to the dollar and Brent crude is above $100 a barrel.

The RBI is already managing currency and liquidity pressures while domestic inflation has accelerated to 4.82% in August.

A Reuters poll on September 14 showed 85% of economists expecting a quarter-point increase, with a majority also expecting at least one more hike by March 2027.

Futures markets have gone further, pricing several increases through July next year. If Fed Chair Kevin Warsh signals that rates may have to stay high for longer, US Treasury yields could remain elevated even after a hike that is already largely priced into markets.