US Federal Reserve raises interest rates by 0.25 percent

Washington: The US Federal Reserve has raised interest rates by 0.25 percent, its first increase in nine years.

This was announced on Wednesday after a two-day policy meeting between officials with stocks rallying in early trading in Europe and the US.

The rate, which stands at 0.5 percent after the increase, was kept the same through out the global credit crunch so that financial institutions could borrow cheaply and in turn allow them to lend at lower rates.

The US central bank cited as the reasons for its action increased household spending and investment by business, along with a continued low rate of inflation. The bank also raised its projection for its economic growth next year slightly, from 2.3 percent to 2.4 percent. That suggests the bank does not think the rate increase will damage growth. US share markets jumped in response.

The move is likely to cause ripples around the world. It could also mean higher borrowing costs for developing economies, many of which are already seeing slow growth.

Much of what happens in India will depend on how foreign institutional investors (FIIs) react to the Fed hike. FIIs have withdrawn nearly $2.5 billion from domestic markets since November in anticipation of a hike. (ANI)