The US Federal Reserve is widely expected to raise its policy rate by 25 basis points tonight, taking the target range to 3.75%-4%, after inflation proved more persistent than markets had expected.

For India, the decision comes at an awkward time. The rupee is hovering around 96 to the dollar, Brent crude is above $100 a barrel and the 10-year US Treasury yield has briefly crossed 5%. The RBI is already managing currency and liquidity pressures while domestic inflation has accelerated to 4.82% in August.

The Fed's quarter-point move would therefore be less important in isolation than what it indicates about the path of US rates, the dollar and global bond yields.

The Fed decision comes at a difficult moment
The Fed entered its September 15-16 meeting with its policy rate at 3.5%-3.75%, where it has been since July. But the inflation picture has changed since the last meeting. August US CPI rose 3.4% from a year earlier and oil prices have added another layer of pressure.