The Federal Reserve (FED) Rate, set by the United States Federal Reserve, is a crucial benchmark interest rate that influences global financial markets. The FED rate is nothing but a Base interest rate for Banks in the United States. The Bankers will add their margin with this FED rate and charge from their customers and interest on Bonds and Fixed deposit also fixed based on this rate only. US currency is the most commonly used intermediate currency in the global market, the changes in this rates will have huge impact in the commodity prices in the countries like India.

The following are some of the important areas which will impact the Indian public

Foreign Institutional Investments (FIIs):

The FED Rate plays a pivotal role in determining the attractiveness of investments in emerging markets like India. When the FED raises rates, investors may find US assets more appealing, leading to capital outflows from India to the US. Conversely, when the FED lowers rates, investors may seek higher returns in emerging markets, injecting capital into Indian equities and debt markets. Hence, the Investor composition in the listed company plays vital role in deciding the market price of its shares in the market. In simple words, the companies which predominantly depending on the FII investment in its capital or debt structure will be impacted by this Interest rate changes.

Exchange Rates:

Changes in the FED Rate influence the value of the US dollar against other currencies. A higher FED Rate tends to strengthen the dollar, making Indian exports relatively more competitive but imports more expensive. Hence, the products consumed by the Indian citizens, which was produced by using the imported raw materials will become costlier and production cost of the companies procuring the such imported goods will increase which results in lower profitability. Conversely, the companies which produces goods by using indigenous materials and exporting the finished products will earn more.

Commodity Prices:

The FED Rate indirectly impacts global commodity prices. A higher FED Rate tends to strengthen the dollar, making commodities priced in dollars more expensive for international buyers, including India. Consequently, industries reliant on imported raw materials or energy may face cost pressures, affecting production costs and inflation.

Borrowing Costs:

Changes in the FED Rate influence global borrowing costs. Indian companies that have borrowed in US dollars may face higher interest payments when the FED raises rates, potentially impacting profitability of those companies and will impact the attractiveness of the investors. Additionally, Indian banks’ may rise interest rates, affecting interest payable for the loans borrowed in the domestic market.