After RBI, US Fed hikes lending rate by 50 bps-highest in 22 years; Wall Street ends with sharp gains

After the Reserve Bank of India raised the benchmark lending rate by 40 basis points (bps) to 4.40 per cent aimed at containing inflation, the US Federal Reserve on Wednesday hiked lending rate by an anticipated 50 basis points. It is the biggest jump in 22 years.  

"The Federal Reserve raised its benchmark overnight interest rate by half a percentage point, the biggest jump in 22 years," said news agency Reuters in a tweet.  

The increase in the Fed’s key rate raised it to a range of 0.75 percent to 1 percent in order to tame inflation, said  

The central bank hopes that higher borrowing costs will slow spending enough to tame inflation yet not so much as to cause a recession. 
According to the Fed's preferred gauge, Inflation reached 6.6% last month, the highest point in four decades.  

Fed Chair Jerome Powell has said he wants to quickly raise the Fed's rate to a level that neither stimulates nor restrains economic growth. Fed officials have suggested that they will reach that point, which the Fed says is about 2.4%, by year's end. 

Meanwhile, reacting to the expected interest rate hike, the US markets closed with sharp gains on Wednesday. Dow Jones surged over 900 points, Nasdaq gained more than 400 points, S&P settled with over 120 points jump and Russell 2000 ended with more than 50 points gain.  

Meanwhile, the dollar was nursing its sharpest fall in more than a month on Thursday after the U.S. Federal Reserve raised its benchmark interest rate by 50 basis points. 

The U.S dollar index toppled from a five-year high and fell 0.9% overnight to 102.450, as per Reuters. Antipodean currencies surged, especially the Aussie dollar, which enjoyed its biggest one-day percentage gain in over a decade as investors dialled back bets on the Fed staying ahead of Australia`s central bank, it said. 

Earlier, the RBI on Wednesday, in an unscheduled MPC meeting, hiked the benchmark lending rate by 40 basis points (bps) to 4.40 per cent to contain inflation, which has remained stubbornly above the target of 6 per cent for the last three months. This is the first-rate hike since August 2018 and the first instance of the MPC making an unscheduled increase in the repo rate (the rate at which banks borrow from the RBI).        

With Inputs from Reuters