Fed To Hike Rates In June, September: Seth Freeman
Dollar is unlikely to appreciate much, says the EM Capital Management senior managing director.
The U.S. Federal Reserve’s signal that the gradual monetary-policy tightening approach is intact, sets the stage for rate hikes in June and September, according to Seth Freeman.
The senior managing director at EM Capital Management added that the dollar is unlikely to appreciate much since two rate hikes have already been factored in by investors.
Speaking to BloombergQuint, Freeman added that foreign flows into India will continue.
Edited excerpts.
Fed said that inflation measured on a 12-month basis has been running close to the committee’s two percent longer-term objective. If we keep this, as well as the jobs data in mind, what do you make of the Federal Reserve’s commentary?
Well they certainly will be data driven, and I think they are very particular about the two percent number, it is what they want to maintain. And they’re also very sensitive to issues of energy and food prices, when they’re looking at the two percent, since those could be very seasonal and also cyclical. So, that’s a focus, plus the employment percentages.
So if we keep the current economic variables of the U.S. in mind, how much scope does the Federal Reserve have to go ahead and hike rates? And do you have any quantum in mind?
Well, I think it really has to do with whether we have some continued economic growth, and how robust that might be. There’s room, and I believe it’s pretty clear their intention at this point is two more rate increases, before the meeting, I and at least 40 percent of other prognosticators, were really looking at a September date.
But based on the comments, looks like it’s much more closer to June, with a second increase in September.
Seth, considering these factors, what does it mean for the dollar index? And what does this mean for the dollar-rupee equation going forward?
I don’t think that we’re going to see much more gains in the dollar, because it’s already baked in basically with this expectation of two 25-basis point increases. In terms of the rupee, the rupee is perceived to be the best emerging markets currency in Asia going forward the next 12 months. The rupee is relatively strong, all things considered, and so it’s very positive for India.
The rupee has appreciated against the dollar recently, and valuations of Indian equities have increased. Considering that, do you still see flows coming in to Indian equity markets or do you think there could be a pause?
Well, I think we have to look at what kind of flows they are. One of the big source of money for India has been exchange traded funds and ETFs have not been as volatile as more traditional portfolio of investors, particularly hedge funds that will move in and out of the markets, so it has created some stability. Also there is much greater participation in equities by domestic participation in equities finally in India, which is very stabilizing.