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India needs to be watchful about Fed rate hike, says CEA Arvind Subramanian

Chief Economic Advisor Arvind Subramanian said that a hike in interest rates by the US could result in the flight of capital from the emerging markets including India.

twitter-logoPTI | July 13, 2015 | Updated 09:32 IST
India needs to be watchful about Fed rate hike, says Arvind Subramanian
Chief Economic Advisor Arvind Subramanian. (Photo: Reuters)

India will have to remain watchful about the interest rate hike by the US Federal Reserve which may happen later this year, Chief Economic Advisor Arvind Subramanian has said.

"A hike in interest rates by the US, it is feared, could result in the flight of capital from the emerging markets including India. Janet Yellen (US Federal Reserve Chair) is saying there will be some rate hike sometime this year, but she expressed concerns over the labour market. What that means is the timing will be carefully done. That is something which we have to watch", Chief Economic Advisor Arvind Subramanian told PTI.

Yellen on Friday had said that the Federal Reserve will begin raising interest rates towards the end of 2015, but sounded cautious over the slack in job market.

The bank has kept benchmark federal funds rate at zero since the end of 2008 to help the economic recovery. Since early last year the Federal Open Market Committee, the Fed's policy arm, had been expected to move on rates around mid-2015, but the decision is being delayed to push the economic growth further.

The Reserve Bank had earlier said that India is prepared to deal with foreign fund outflows as the country has significant forex reserves. India's foreign exchange reserves marginally declined by $700 million for the week ended July 3 to $354.5 billion.

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