How does the US Fed's decision enable more RBI rate cuts?
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Synopsis
The recent decision by the US Federal Reserve to cut interest rates opens the door for the Reserve Bank of India to consider additional cuts, spurring economic growth. Experts weigh in on the potential impact on investments and the Indian economy, emphasizing the significance of the labor market and inflation metrics.
Key Takeaways
- The US Fed's rate cut opens opportunities for the RBI to lower rates.
- Analysts predict benefits for borrowing costs in the Indian economy.
- Investors may find bonds attractive in light of expected further cuts.
- The US labor market presents challenges that could impact economic decisions.
- Market optimism persists, driven by earnings recovery expectations.
New Delhi, Sep 18 (NationPress) The much-awaited rate cut by the US Federal Reserve sets a clear path for the Reserve Bank of India (RBI) to consider additional rate reductions aimed at boosting economic growth, analysts indicated on Thursday.
The Fed's announcement, which lowers the benchmark interest rate to a range between 4 percent and 4.25 percent, suggests that there could be two more cuts later this year.
Vishal Goenka, Co-Founder of IndiaBonds.com, emphasized that addressing the steep curve through interest rate reductions and managing the issuance of government securities for short maturities could effectively decrease borrowing costs for businesses and the economy overall.
“This is a prime opportunity to invest in bonds with the expectation of further rate reductions this fiscal year,” he noted.
As per Arindam Mandal, Head of Global Equities at Marcellus Investment Managers, the FOMC's decision was as anticipated with a 25 basis points cut, signaling the possibility of two more reductions in the remainder of the year if necessary.
“Employment statistics remain crucial, with expectations that the unemployment rate may peak at 4.5 percent by year-end. The commentary on inflation was notable, as they predict prices to remain elevated in the short term due to tariffs, coupled with an expectation of inflation exceeding 2 percent, the Fed's target, until 2027. This will mark a seven-year period of inflation above the target,” he elaborated.
The decision by the US central bank reflects increasing concerns regarding the softness in the labor market, including rising unemployment among minority groups and a shrinking workweek.
Fed Chair Jerome Powell characterized the job market as experiencing a “curious kind of balance,” where both supply and demand for labor have slowed, and he warned of potential downside risks, including increased layoffs, according to Devarsh Vakil, Head of Prime Research at HDFC Securities.
Analysts believe that the Indian stock market is unlikely to be influenced by the Fed's decision.
The current market rally is driven by anticipations of earnings recovery and positive results from the India-US trade negotiations, they remarked.
Point of View
I believe that the recent rate cut by the US Federal Reserve presents a vital opportunity for the Reserve Bank of India to stimulate growth in our economy. While the implications of such decisions are complex, it is crucial for us to navigate them with a focus on stability and sustainable development. We must remain vigilant and informed as these economic shifts unfold.
NationPress
20/09/2025
Frequently Asked Questions
What is the significance of the US Fed's rate cut?
The US Fed's rate cut is significant as it creates a favorable environment for other central banks, like the RBI, to also reduce rates, potentially stimulating economic growth.
How might this impact the Indian economy?
This could lower borrowing costs for businesses, encouraging investment and spending, which is essential for economic growth.
What do analysts say about the stock market's reaction?
Analysts believe that the Indian stock market is unlikely to be adversely affected by the Fed's decision, as the current rally is driven by positive earnings expectations.
What are the projections for unemployment and inflation?
Experts expect the unemployment rate to peak at 4.5% by year-end, with inflation anticipated to remain above 2% until 2027.
What should investors consider at this time?
Investors are advised to consider bonds as a viable investment option given the likelihood of further rate cuts this financial year.
