The US legislature has approved a remarkably large stimulus package. In the short run, this stimulus package and the normalisation of the economy owing to large-scale vaccination in the US will generate a demand surge. These developments are likely to generate export buoyancy for India. But there are concerns that this could generate inflation. The US Federal Reserve (US Fed) is committed to a 2 per cent inflation target. When inflationary pressures surface, the US Fed will raise rates. There are slight signs that a rate increase could come in 2023, but there is a significant uncertainty. Comparisons with the Indian 2013 currency defence are instructive, and suggest that such a scenario is unlikely.
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First Published: Sun, March 21 2021. 22:53 IST