If we get rich we would not worry about the Fed.

In its last meeting the Federal Reserve in the US resolved to go slow in raising US interest rates as the recovery is still seen as fragile. The IMF has already advised the Fed to postpone any rate rises till next year because of weaker than expected growth in the US economy and the massive volatility in asset prices, stocks, commodities and currencies, it may cause. Fund managers are trying to work out who will win and who will lose when the Fed does raise interest rate. Sure losers are corporate borrowers, who will have to find more money as the dollar becomes stronger, and emerging markets, which might see a fall in currencies as funds transfer money back to the US. Reserve Bank Governor, Raghuram Rajan has been blunt in his criticism of the ultra-lose policies of the central banks of rich countries, forcing previous Chair of the Fed, Ben Bernanke to defend his actions. We do not care what the Fed does except in so far that it affects us. Two years back the rupee collapsed to 69 to the dollar when Bernanke talked about tapering quantitative easing in the US, in what became known as the ' taper tantrum '. Today the situation is much improved. The RBI has built up foreign exchange reserves to over $350 billion, the fiscal deficit was down to 4% last year and the current account deficit is down to 0.2% of GDP in the first quarter. The trouble is that the Congress allowed companies to borrow overseas because massive government borrowing to finance the fiscal deficit left little for the private sector. Precisely the opposite of what the US did, when it took over AIG, and what the British government did when it took over the RBS. Many of these Indian companies have not bothered to hedge their loans and will find it difficult to repay if the dollar were to rise further against the rupee. A default by a large company could lead to loss of confidence and a sell out by foreign investors. If the RBI lowers interest rate substantially it would allow banks to restructure loans at lower rates and give the companies some breathing room. But if interest rate is lowered what happens to the rupee? The rupee has fallen by 1.6% against the dollar this year but other emerging markets have fallen even more. The Indonesian rupiah has fallen by 7%. The strength of the rupee depends on a lot of factors. Apart from the Fed we have to worry about the monsoon, the international price of oil and what our politicians do, especially on taxes. Apparently, money held in Swiss banks by Indians fell by 10% last year. Rs 126 billion seems too little. There must be more, but where? If interest rate and the rupee fall further it would make sense to save invest in the US and in Europe. How will they tax properties there? Not much point assuring foreigners on taxes, assure your own citizens. Foreigners will invest for profits, not if we are kept poor by taxes.