On Wednesday, the US Federal Reserve announced a 25 bps increase in interest rates, taking the rate to a target range of 4.75-5 per cent. The decision, which was largely expected, reflects the government’s confidence in the country’s banking system and the Fed’s commitment to controlling inflation.

The Fed stated that recent developments would likely result in tighter credit conditions, which could weigh on economic activity, hiring, and inflation, but the extent of these effects is uncertain. This is the ninth consecutive rate hike by the Fed, bringing rates to their highest level since 2007.

The Federal Reserve indicated a halt in any future increases to interest rates in light of the recent upheaval in the financial sector following the collapse of two banks. However, the FOMC maintained that the US banking system remains sound and resilient.

Following the announcement, US stocks experienced a sharp decline, with the DJIA falling by 530.49 points (1.63%), the S&P 500 shedding 1.65% to 3936.97, and the Nasdaq Composite falling by 190.15 points (1.60%).

Impact on Global Markets

Asian stocks experienced mixed results, with some losses and gains. During early trade, Australia’s ASX 200 declined by 0.67%, Japan’s Nikkei was down 0.75% soon after opening, and the more comprehensive Topix index fell by 0.29%. Meanwhile, South Korea’s Kospi increased by 0.31% in early trade, and at the time of the report, Hang Seng was up 2.34%.

The Chinese yuan firmed on Thursday, buoyed by more dovish comments from the US central bank, which reduced expectations for further interest rate hikes, increasing sentiment for the yuan and other Asian currencies. Meanwhile, the SGX Nifty indicated a muted start for the Indian stock market, with Nifty futures trading at 17118.5, down by 0.22%.

Indian Markets Decline

Indian stocks fell during Thursday’s morning trade following a decline in the US markets due to the US Federal Reserve’s decision to tighten its monetary policy to bring down inflation. The recent collapse of some banks has also led to continued volatility in the banking system. Interest rate hikes in advanced economies, such as the US, can be detrimental to developing countries like India as investors tend to shift their investments to more stable and profitable markets.

In line with the US market, Indian government bond yields fell during Thursday’s early session. Still, they showed signs of stabilising after the Federal Reserve announced an expected 25 basis point interest rate hike and signalled a possible pause in further increases. The 10-year benchmark 7.26% 2032 bond yield hit its lowest level since February 8, settling at 7.3256% as of 10:00 am IST.