US administration has announced a tariff hike for imported metals recently, which had less impact on India. Click hereto know more about the issue.
Following that move US Federal reserve is planning to hike interest rates, which is likely to have impact on India.
What are the impacts of US’s move on imported metals?
Trade Expansion Act of 1962, which gives the US the right to investigate whether certain imports, or high levels of certain imports, pose a threat to its national security.
Based on this act US has imposed high tariffs on imported steel and aluminium, and the US administration also plans to expand this act further to other metals.
As of now India’s steel exports to the US is at less than 1% of the total Indian production, and aluminium exports are just 2%.
Thus USA’s decision may not have any immediate or direct impact on the Indian metals sector.
What are the expected Federal Reservereforms in US?
Within the US domestic economy, higher inbound steel and aluminium escalates the threat of higher consumer prices caused by importers passing on their increased costs for raw materials.
This could then force the Federal Reserve toraise rates faster than it would have done otherwise.
The Fed is also slated to pursue its scheduled reversal of the easy money policy, or the so-called quantitative easing of the last decade, going ahead.
The American central bank had also announced that it would start shrinking its balance sheet by selling the treasury bonds and mortgage-backed securities in order to inject liquidity in the markets.
The sale of such securities is slated to go up in the coming months, with this the Fed would gradually wind down the $ 4 trillion in holdings that it acquired during the phase of quantitative easing.
What will be the impacts of hiked interest rates for India?
The three external risk factors higher tariffs, rising interest rates and elevated bond sales come at a time when the domestic banking system is grappling with a renewed stress of bad loans in India.
An increase in interest rates in US has implications for emerging economies such as India, both for the equity and debt markets.
Already the Indian government securities market has been falling for the past seven months on cues of rising US yields and projections of increased local inflation.
Higher US rates lead to outflows from emerging market bonds and equities as investors look to chase higher returns in their home country.
