US Fed Holds Rates Steady But Indian Markets Focus on Oil and Bond Yields

Rate Decision

The US Federal Reserve kept interest rates steady on Wednesday, 28 October, maintaining the target range for the federal funds rate at 3.75% to 4%. The Federal Open Market Committee approved this decision by a 10 to 2 vote. Governor Lisa Cook and Cleveland Fed President Beth Hammack dissented in favour of a 25-basis-point rate hike. The central bank noted that economic activity grows at a strong pace while inflation remains elevated. Experts say this pause was already priced in by markets.

Market Impact

Indian stock markets are unlikely to see major gains from the US Fed decision because domestic investors remain worried about other factors. Brent crude oil near $115 per barrel and rising US bond yields pose bigger challenges for India. V K Vijayakumar of Geojit Investments noted that value buying is emerging in some segments. G Chokkalingam of Equinomics Research warned that high oil prices and foreign investor selling create serious headwinds. Vinit Bolinjkar of Ventura added that upcoming quarterly earnings and geopolitical tensions also guide the market.

Foreign Outflows

Foreign portfolio investors continue to sell Indian stocks due to the weak rupee and heavy fund movement into the primary market. Chokkalingam stated that India's monthly oil import bill could reach $15 billion to $16 billion while oil stays at these levels. Meanwhile, US 10-year bond yields rose to 5.046% from 4.993%. Analysts expect the Fed to raise rates again at its next policy meeting in December.

Context

Central banks adjust interest rates to manage economic growth and keep inflation under control. When global interest rates and bond yields rise, foreign investors often pull money out of emerging economies like India in search of safer returns. High crude oil prices also increase import costs and put pressure on the domestic currency.