US Fed rate hike will be gradual: Panagariya

Says status quo by US Fed is contrary to the expectation, but he does not see any big reaction

Terming the no change in interest rates by the US Federal Reserve (Fed) a “non-event”, NITI Aayog Vice-Chairman Arvind Panagariya on Friday said whenever the hikes begin, there will be a gradual rise.

He said the status quo by the Fed is something contrary to expectations but he does not see any big reaction.

The market, he said, was anticipating a rise.

“It is basically a non-event. I have said this before, even if the Fed begins to raise (the interest rate), it will be a very gradual rise,” Panagariya said.

The US Fed in its meeting on Thursday decided not to raise interest rates. “To support continued progress toward maximum employment and price stability, the Committee...reaffirmed its view that the current zero to 1/4 per cent target range for the federal funds rate remains appropriate,’” the Federal Reserve said in Washington.

Panagariya said the market reacts naturally, but it has been unlike 2013 when there was a fairly large reaction on a similar expectation from the US Fed.

"I don't think the kind of thing we have actually observed in 2013. Remember when there was this...that time no change did happen, there was some perception that some change might happen. And that had generated a fairly large reaction. I don't expect that (this time)," he added.

Earlier in the day in Mumbai, the Reserve Bank of India (RBI) Governor Rahguram Rajan said the US Fed was impelled to hold near-zero rates again due to the emerging threat to the global economy as well as its concern over health of the American economy.

"If we look around the world today, it doesn't present a pretty picture. Industrial countries are still struggling, with a few exceptions, to grow and the uncertainty about growth in the US as well the world is probably what impelled the Fed to stay on hold yesterday," Rajan said.

Panagariya, speaking at the India Economic Convention, organised by International Chamber of Commerce and Ficci, Panagariya, also said NITI is working on various fronts for economic development of the country.

"NITI Aayog is a very, very young institution and we are working on various fronts. One of our mandates is to function as government's think tank, which is very challenging to build up," he said.

Among other things, he said NITI is trying to partner with other knowledge institutions and think tanks around the country and off site as well.