Fat cats and fatter cat.

"US economic growth, still racing at a potentially inflationary pace as other key parts of the world slow, could pose global risks if it forces Federal Reserve officials to raise interest rates higher than currently expected." Reuters. Between March and December 2022, the Fed raised its Funds rate by 4.25%, or 425 basis points, and has raised it by another 1%, or 100 basis points, since February this year. Forbes. The impact of the Fed's aggressive rate hikes last year was muted by largely synchronized rate hikes by other central banks but, "Now Brazil, Chile and China have begun cutting interest rates, with others expected to follow," so any substantial hikes by the Fed will cause problems for other central banks as the dollar becomes stronger against their currencies. In the US, "The overnight interest rate at 5.25%-5.50% now stands at its highest level in 22 years, prompting the European Central Bank to follow suit with its 9th consecutive rate hikes, reaching levels not seen since 2001." ET. As a result, "India finds itself at a critical point as its interest rate differential with the US has notably narrowed." As the dollar becomes stronger against the rupee it will make imports costlier and add to consumer inflation. "The rupee closed at a record closing low of 83.1475 to the dollar on Thursday (17 August)." ET. "India, an import-dependent country, could feel the heat of a falling Rupee in an inflationary environment as it stands to further impact the spending decisions of households." Why is the Reserve Bank of India (RBI) reluctant to raise interest rates in tandem with the Fed, even if by smaller amounts? Because the RBI wants to reduce the borrowing cost of the government as it borrows from the market to finance its fiscal deficit. The Monetary Policy Committee (MPC) of the RBI kept its repo rate unchanged at 6.5% for the third time in a row in its August meeting. ET. However, the market isn't impressed. The yields on two year government bonds, or gilts, in India was 7.006 on 27 August compared to 4.937 on 2-year US Treasuries, while the yields on 10-year bonds in India was 7.096 compared to 4.007 in the US. So the US government borrows at a rate lower than the interest rate set by the Fed while the Indian government has to pay a rate higher than that set by the RBI. The reason is that the Fed is resolute in its determination to bring inflation down to its target level of 2% while the RBI uses the excuse of growth to do nothing. Something has definitely grown. "In absolute terms, net profits of listed corporates in FY22 stood at Rs 9.5 trillion, against Rs 5.6 trillion in FY21, a jump of more than 69%," wrote Vivek Kaul. This is because, "Primarily, the overall expenditure went up by 21.7%, at a rate lower than the overall growth in sales." What caused the cut in expenditure? "The biggest cut in expenditure was on interest expenses on debt." Which was because of the RBI. So, money was transferred from poor savers to super rich fat cats. Which is shown by the soaring sales of luxury cars in India. ET. The RBI may be happy creating fat cats in India but it should remember that the US Fed is a fatter cat than it is. Much fatter.