Lagging behind the US not a good idea.

US Federal Reserve has bowed. "Federal Reserve officials intensified their battle against the hottest inflation in a generation by shifting to end their asset-buying program earlier and signaling they favor raising interest rates in 2022 at a faster pace than expected," ET. The Fed will reduce its bond buying program by $30 billion every month and intends to increase interest rate by 25 basis points (0.25%) three times in 2022. In January, the Fed committed to keeping interest rate at near zero and continuing with its program of buying $120 billion worth of bonds every month, of which at least $80 billion would be Treasury securities and $40 billion would be mortgage-backed securities, Barron's. Reducing bond buying by $30 billion per month means that the program will end in April and the Fed could start tightening its Funds rate from May. Why the panic? Because, "US consumer prices soared 6.8% in the past year, most since 1982," ET. And, "Wholesale prices measure rose 9.6% in November from a year ago, the fastest pace on record," CNBC. On the other hand, "India's retail inflation in November firms up to 4.91%," ET. The rise seems muted since prices are in comparison to November 2020 when retail inflation was 6.93%. Wholesale price index (WPI) inflation was a record 14.23% and this will surely be passed onto consumer prices, ET. As opposed to the Fed, the Reserve Bank of India (RBI) not only held interest rate at 4% but maintained its "accommodative stance", which means it is ready to cut rates even lower if it feels like, ET. Naturally, "The rupee weakened past the psychologically significant 76 per US dollar level on Wednesday, shedding as much as 0.3 percent in early trade as fear of foreign fund outflows intensified following the global strengthening of the US dollar, dealers said," ET. "Foreign portfolio investors have embarked on a vicious selling spree in domestic equities and debt, with net sales of around Rs 80,000 crore (Rs 800 billion) since October." Small change. The total value of foreign portfolio investors' (FPI) investment in the Indian stock and bond markets stood at Rs 54.7 trillion in September, which is because of a phenomenal rise in share prices, TOI, caused by a flood of liquidity from the RBI. "Large doses of liquidity have been provided by the RBI starting in 2020 even before covid, when it used its LTRO (long term repo operations) and OMO (open market operations) as tools. This was later topped with TLTRO (targeted long term repo operations) and its GSAP (government securities acquisition programme," wrote Madan Sabnavis. Since demand for credit is low, banks have been parking Rs 6-8 trillion in the RBI's reverse repo window for returns of 3.35-3.75%. Normally, inflation reduces the value of the currency, the rupee, and influx of foreign currency will increase the value of the rupee, explained Pritam P Hans. Curiously, " while RBI has accumulated an additional $61 billion since the start of the current financial year, the rupee has lost value", wrote Karan Mehrishi. "During the financial year 2020-21, the RBI net purchased USD 68.315 from the spot market," FE. However, in October 2021, the RBI was net seller of USD 100 million. Was it trying to prevent a precipitous fall in the value of the rupee? Might need a lot more next year.