US Fed decision paves the way for RBI to go for more rate cuts: Analysts
The long-anticipated rate cut by the US Federal Reserve clearly paves the way for the Reserve Bank of India (RBI) to move to cut rates further to spur growth in the economy, analysts said on Thursday.
Announcing the cut that brings the benchmark interest rate to the 4 per cent to 4.25 per cent range, the Fed indicated that two more cuts could be on the way this year.
Vishal Goenka, Co-Founder of IndiaBonds.com, said that addressing the steep curve by interest rate cuts and balancing of government securities issuance for short periods maturities could get the desired effect of lowering borrowing costs for companies and economy in general.
“Good time to be investing in bonds with expectation of further rate cuts this financial year,” he mentioned.
According to Arindam Mandal, Head of Global Equities at Marcellus Investment Managers, the FOMC action was inline with expectations with a 25 bps cut, signaling 2 further cuts rest of the year if need be.
“Job numbers remain the key as it expects unemployment rate to peak out at 4.5 per cent by end of this year. The inflation oriented commentary was interesting as they expect not only the prices to stay elevated in near term due to tariffs, but also the expectation of inflation to stay higher than 2 per cent, which is Fed’s target inflation till 2027. That would mark a 7 year streak of inflation staying higher than target,” he elaborated.
The US central bank's decision reflected growing concerns over labour market softening, including rising unemployment among minority workers and a declining workweek.
Fed Chair Jerome Powell described the jobs market as experiencing a "curious kind of balance" where both supply and demand for workers have decelerated, warning of potential downside risks, including higher layoffs, said Devarsh Vakil, Head of Prime Research at HDFC Securities.
Analysts said the Indian stock market is unlikely to be impacted by the Fed decision.
The ongoing rally in the market is driven by expectations of earnings revival and a positive outcome from the India-US trade negotiations, they noted.
