US Fed rate cut to have little impact on India: CEA Nageswaran
New Delhi: The recent rate cut by the US Federal Reserve is unlikely to have a major impact on India, as much of the move was already factored into the market, said Chief Economic Advisor (CEA) V. Anantha Nageswaran on Thursday, media reports said.
Commenting on the development, Economic Affairs Secretary Ajay Seth told reporters that the rate cut would not significantly affect foreign inflows into India.
"It is a positive for the global economy, including the Indian economy. It is a 50 basis point cut from a high level. I don’t see that making any significant impact on inflows. We have to see from where the US interest rate levels are. We have to see how other economies’ markets behave," Seth was quoted as saying by Business Standard.
The US Federal Open Market Committee had voted on Wednesday to reduce the federal funds rate target range by 50 basis points to 4.75-5.00% from 5.25-5.50%.
Speaking at the Deloitte Government Summit 2024, Nageswaran noted that the Indian stock market is already drawing investor interest, and overall, the rate cut is beneficial for emerging markets. "Stock markets had moved ahead of the rate cut... It is difficult to predict whether the rate cut per se will be a fillip to the global economy because other things are not constant," Nageswaran said, referring to ongoing geopolitical tensions amid a global economic slowdown, according to Business Standard.
He further explained, "If everything else stays constant, then the rate cut by itself should be a positive because it lowers the dollar cost of capital, increases dollar liquidity in the world."
Nageswaran also pointed out that the easing of dollar liquidity would be a relief for many countries, especially developing nations, which had been impacted by the Fed’s tightening of interest rates between 2022 and 2023.
The Fed's decision comes after keeping interest rates at a two-decade high for 14 months.
It also precedes the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) meeting, scheduled for October 7-9.
When asked if the RBI would follow suit and cut interest rates, Seth said that it was up to the MPC to decide at the appropriate time.
"Their decision is based on what is good for the Indian economy. You should not read too much into the event which happened yesterday," he stated, according to the report.
The RBI has maintained steady interest rates since February 2023.
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