US Fed’s 2nd consecutive rate cut a booster for emerging markets like India

Mumbai, Nov 8 : The US Fed’s second consecutive rate cut this year of 25 basis points should be bullish for emerging markets like India, market experts said on Friday.

It wasn't a surprise when the US Fed cut interest rates by 25 basis points (bps) to 4.75 per cent and given the US macro indicators, the rate cuts now are rather pre-emptive.

“India, on the other hand, is facing sticky food inflation but also lower growth possibilities. The RBI is facing the trilemma between growth, inflation and currency movements. In that sense, a domestic rate cut will help,” according to a note by Angel One Wealth.

The RBI Governor Shaktikanta Das this week said that although the central bank had shifted towards a softer neutral monetary policy stance to spur growth, this did not mean that an interest rate cut would happen immediately.

“A change in stance doesn't mean there will be a rate cut in the very next monetary policy meeting,” he said, adding that there were still significant upside risks to inflation and "a rate cut at this stage would be very risky".

The RBI, at its recent monetary policy review, kept interest rates unchanged for the 10th straight meeting, but switched its monetary policy stance to "neutral" from "withdrawal of accommodation".

Meanwhile, the Fed's second consecutive rate cut this year of 25 basis points comes on the heels of a highly eventful week, preceded by Donald Trump's election victory and rate cuts by the Bank of England.

Apurva Sheth, Head of Market Perspectives and Research , SAMCO Securities said that although the Fed Chief is hopeful of taming inflation back to the 2 per cent target soon, thus not warranting a restrictive policy.

“The bond yields have cooled off and slipped below the 4.335 per cent mark. This should be bullish for emerging markets like India,” Sheth said, adding that it seems that the market is anticipating slower rate cuts going ahead and maybe there are even chances of inflation rising.