The additional federalism will have a limited effect on the Indian economy

- The Reserve Bank will wait for fiscal policies to curb inflation

In these rural times, monetary policy will be based on local macro-economic conditions rather than global factors. However, measures to tighten liquidity by the federal and some other major central banks could force the RBI to adopt a less ambiguous tone at its next policy meeting in April. While its favorable trend must continue to support growth. U.S. The Federal Reserve's decision to raise interest rates for the first time in three years will only have a limited spillover effect on India, as markets have largely absorbed the impact, economists said.

In addition, given the strong macroeconomic fundamentals, India is well prepared to withstand any external shock. The Reserve Bank and the government also have the tools needed to remove most of the extra spill, he added. In fact, the stock markets responded favorably to the Fed's rate hike.

Foreign portfolio investors, the main channel for spillover, have pulled out of the Indian equity and debt markets in the last few months in anticipation of tightening global policy. They have an outflow of ૯ 15 billion since October 2021. The rest of the holdings are likely to be held by more long-term investors who may be less inclined to sell their portfolios.

Regardless of the last set of Monetary Policy Committee forecasts, there are reverse risks to domestic inflation and declining risks to growth. Which complicates monetary policy decisions. Two repo hikes are expected in the 206th financial year. Which is relative to the seven rate hikes suggested by the Fed dot plot. An increase in the repo rate will further increase G-Sec yields.

The Fed's latest decision was a foregone conclusion so the immediate effect will be muted but yes the Fed rate hike cannot be ignored as the move will affect the inflow of foreign investors. Which usually affects the currency, and will therefore be monitored by the Reserve Bank. High inflation that could ultimately affect government decisions on excise rates on fuel and subsidies.

The RBI is likely to revise its inflation ratio at its April meeting but will continue to adhere to the timing to strengthen growth and will not raise policy rates.

The biggest risk for Barat from the Ukraine crisis is a slowdown in growth rather than inflation. This is because the state of the business cycle in India is somehow weak at the moment as it tends to emerge from the epidemic. Structurally the economy was weak even before the epidemic and some of the structural barriers have probably worsened during the epidemic. Overall the RBI will wait for fiscal policies to ease the pain of inflation.