Editorial

Fed rate hike makes inflation a concern

The Federal Reserve’s decision to raise policy rates by 25 basis points to 1.75% and forecast asteeper(तीव्र ढलानवाला) path of hike(वृद्धि/बहुत तेजी से चलना) in 2019 and 2020 did not quite come as a bolt from the blue. It is in line with previous statements on gradually exiting the extra-liberal monetary(मौद्रिक/आर्थिक) policy accommodation(सुविधा/समझौता) in the wake of the financial crisis(संकटकाल) in 2008. Markets have responded, mildly enough.The hike is based on the assessment that the US economic outlook has become stronger. The new

Fed chairman Jerome Powell said that a more “stimulative(उत्तेजना का/प्रेरणादायक) fiscal policy” in the form of massive tax cuts (announced by President Donald Trump) helped boost growth. So, all the eight members voted to raise rates and prepared markets in advance for three rate increases in 2018. This will impact the booming(शोर मचाना/धूम मचाना) carry trade — borrowing(उधार/कर्ज लेना) money in a market with low interest rates to invest it in markets such as India that earn a much higher return. India’s debt market is ripe for some capital outflow, as funds redeploy(पुनर्वितरित) to safer US government bonds. Already, foreign portfolio investors have pulled out about half a billion dollars in the last three weeks in anticipation of the US Fed rate hike. This is no disaster(विपत्ति/आपदा), as the rupee’s real effective exchange rate has risen and needs to come down, to boost exports.

Since early March, the rupee has started weakening against the dollar, our main trading currency. This will raise import costs. That is not good news for India, a net importer. Worryingly(तंग करते हुए/चिंताग्रस्त करते हुए), the rise in crude oil prices and a weaker rupee could widen our current account deficit(घाटा/अभाव). Given these trends, policymakers must take measures to counter rapid depreciation. Managing the fisc better and improving the supply-side management is a must to keep inflation under check, and create room to raise rates, if needed.

Important Vocabulary

1.Hike(वृद्धि/बहुत तेजी से चलना)
Synonyms: trek, trip, backpack, constitutional, excursion

2.Crisis(संकटकाल)
Synonyms: catastrophe, change, confrontation, crunch, deadlock
Antonyms: agreement, benefit, blessing, breakthrough, calm

3.Stimulative(उत्तेजना का/प्रेरणादायक)
Synonyms: invigorating, refreshing, animating, chilly, cool
Antonyms: friendly, hot, responsive, temperate, warm

4.Booming(शोर मचाना/धूम मचाना)
Synonyms: growing, profitable, prosperous, roaring, thriving
Antonyms: disadvantageous, failing, losing

5.Disaster(विपत्ति/आपदा),
Synonyms: calamity, catastrophe, collapse, crash, debacle
Antonyms: achievement, advantage, attainment, benefit, blessing

6.Accommodation(सुविधा/समझौता)
Synonyms: compromise, reconciliation, adaptation, compliance, composition
Antonyms: disagreement, fight, nonconformity, refusal