Federal Reserve unlikely to hike interest rate this week: HDFC Bank economists

MUMBAI: The Fed is unlikely to hike the interest rate in its meeting this week, but Bank of Japan may lower its negative interest rate further leading to nervousness in the global financial markets, say HDFC Bank economists.

``For both, the decisions will be revealed tomorrow and an intense shift in outlook or policy could lead to nervousness in the global financial markets,’’ Abheek Barua, economist at HDFC Bank wrote in a note. ``Real action is likely to be coming out of Tokyo, where speculation is rife for a possible rate cut.’’

International investors are on the edge as central banks from the US Fed to the Bank of Japan are diverging on their views on how to revive their economies. While the prolonged zero interest rates in the US has led to strength, Japan continues to struggle with low growth and deflationary situation.

With the recovery in the US, some investors expect the Fed to move towards normalisation of rates by raising 25 basis points. But HDFC Bank believes it might happen in December and not this week.

“Fed will decide to stay on hold tomorrow,” said Barua.

But he expects the BoJ to push further on the already existing negative interest rates further as it is not able to go anywhere near its inflationary goals.

``Although negative interest rate policy is the most debated element of the BOJ’s current monetary policy framework, recent speeches from Governor Kuroda suggest that the benefits of negative interest rate policy could outweigh the cost that it entails,’’ said Barua.