Quotation on US Fed's 25 bps interest rate cut by Rajeev Sharan, Head - Criteria, Model Development & Research Brickwork Ratings
Below the Quotation on US Fed's 25 bps interest rate cut by Rajeev Sharan, Head - Criteria, Model Development & Research Brickwork Ratings
The Fed’s December cut to 3.50-3.75%, its third 25 bps reduction in a row, signals a pause in the easing cycle, with inflation still elevated and policymakers cautious about potential tariff-related pressures. For India, while lower U.S. rates should ease capital flow pressures, the INR depreciation of around 4.9% YTD underscores market scepticism that Fed cuts alone can offset structural headwinds from Trump tariffs and elevated U.S. Treasury yields. We expect the INR to remain below 90/USD for the rest of 2025 and gain strength through 2026 to reach around 86/USD by the end of next year. The key question is whether the Fed sustains further cuts in 2026. Any pivot toward a prolonged pause or hawkish stance could revive dollar strength, deepen rupee depreciation, and trigger rating downgrades for India's externally vulnerable sectors.
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