Mumbai
The US Federal Reserve’s second consecutive interest rate cut of 25 basis points (bps) is expected to benefit emerging markets like India, according to market experts on Friday.
The Fed reduced interest rates to 4.75%, a move not entirely unexpected given the US economy’s current outlook. The rate cuts are seen as a proactive step to support growth in the face of economic challenges.
Experts believe India, despite facing persistent food inflation and slowing growth, could gain from the US Fed’s actions. “India’s central bank, the RBI, is balancing the challenges of inflation, growth, and currency fluctuations. A domestic rate cut would help in this situation,” said a note from Angel One Wealth.
Although the RBI Governor Shaktikanta Das hinted at a shift towards a more neutral monetary policy, he cautioned against expecting an immediate rate cut, citing the risks of higher inflation. The RBI has kept its interest rates unchanged for the tenth consecutive time but adjusted its stance to “neutral” from “withdrawal of accommodation.”
The Fed’s move follows a week of major events, including Donald Trump’s election win and rate cuts by the Bank of England. Apurva Sheth, Head of Market Perspectives at SAMCO Securities, believes the cooling of US bond yields should positively impact emerging markets. “This creates a favorable environment for markets like India, even as inflation risks remain,” Sheth added.
