- The Federal Reserve on Wednesday announced a plan to start shrinking its balance sheet in October and signalled one more rate hike later this year.
- The US central bank's announcement of another interest rate hike this year took markets by surprise as a series of poor inflation readings had dampened expectations for such a step.
- Higher interest rates tend to boost the dollar and push bond yields up, putting pressure on other currencies as well as greenback-denominated commodities such as gold.
- The Fed's announcement brightened the outlook for the dollar, helping push the greenback to near two-month highs against a basket of global currencies and eroding the appeal of emerging market assets.
- The Indian government is considering a plan to loosen its fiscal deficit target to enable it to spend up to Rs 50,000 crore more to halt an economic slowdown, news agency Reuters reported citing sources.
- The extra spending was estimated to widen the federal fiscal deficit for the financial year ending next March to 3.7 per cent of GDP from a budgeted target of 3.2 per cent, the Reuters report said.
- Growth in Asia's third-largest economy slowed to a three-year low of 5.7 per cent in the quarter that ended in June, and Finance Minister Arun Jaitley said on Wednesday that the government was looking for ways to speed it up.
- According to latest RBI data, India's April-June current account deficit widened to 2.4 per cent of gross domestic product, or $14.3 billion - its highest in four years - as imports surged.
- However, analysts expect the RBI to cushion the rupee's volatility. The RBI last week said the foreign exchange reserves rose past $400 billion for the first time ever.
- Foreign institutional investors have sold Indian shares worth nearly Rs 5,000 crore this month. Despite the recent weakness, the rupee is up 4 per cent against the US dollar this year, amid strong inflows into India's debt market. Analysts expect rupee to weaken over the course of this year. Rating agency India Ratings expects the rupee to fall to 65.50 by March next year.
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