Thu Sep 19 15:09:53 UTC 2024: ## Fed’s Surprise Rate Cut Sends Shockwaves Through Global Markets, Including India

**New Delhi, India** – The US Federal Reserve’s unexpected 50 basis points (bps) interest rate cut on Wednesday sent shockwaves through global markets, including India, where experts are divided on the implications for the economy.

The larger-than-expected rate cut, initially met with market volatility, led to modest gains by the end of the trading session. While the Fed’s primary goal was to support a weakening labor market, analysts believe the move could push equity markets into a consolidation phase and signal a shift towards easing monetary policy globally.

**Impact on India:**

Experts believe the Fed’s aggressive cuts could pave the way for the Reserve Bank of India (RBI) to lower interest rates. With India’s consumer price inflation already easing below the RBI’s 4% target, two potential rate cuts of 25 bps each by March 2025 seem likely.

“The aggressive US Fed cuts will allow RBI to cut rates,” stated Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services. “We expect two rate cuts of 25 bps each by March 2025.”

Rate cuts could benefit leveraged sectors like metals and infrastructure, but might put pressure on India’s banking sector, especially with a declining CASA (current account savings account) base. Lower deposit interest rates could affect banking profitability in the medium term.

**Market Reactions:**

The Fed’s decision is expected to increase foreign capital inflows into the Indian debt market, leading to lower domestic bond yields. This could benefit both government borrowing and the corporate bond market, potentially encouraging Indian banks and infrastructure companies to issue long-term bonds.

While a weakening US dollar could draw capital back into India, stabilizing markets by year-end, experts anticipate a gradual depreciation of the rupee to 84.5 by the end of the fiscal year.

**Looking Ahead:**

The full impact on India’s economy will depend on how the US economy evolves and how global investors adjust their portfolios. The Reserve Bank of India may consider a pre-emptive 25 to 50 basis points rate cut before 2025, depending on domestic inflation and foreign capital inflows.

While the Fed’s rate cut presents potential benefits for certain sectors in India, the banking sector may face short-term challenges. The Indian economy is likely to navigate this new global monetary landscape, provided that domestic inflation stays in check and foreign capital inflows remain steady.

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