US Federal Reserve Cuts Rates by 50 Basis Points: Impact on India and Emerging Markets
The US Federal Reserve has reduced interest rates by 50 basis points, a move that experts believe will benefit India and other emerging markets. This decision is expected to facilitate fund flows to these markets, boost stock market performance, and reduce borrowing costs in India.
Nilesh Shah, Managing Director of Kotak Mahindra AMC, stated, “US Fed opened the rate cut cycle with a bang with 50 bps cut in line with changed market expectations. This rate cut will facilitate flows to the emerging market assets with a weaker dollar and lower rates.”
Following the announcement, US stock markets saw significant activity, with the Dow and S&P 500 reaching new all-time highs before the S&P 500 dipped 0.3% by the end of the day. Gold prices surged past USD 2600 before falling to USD 2554, and Bitcoin also crossed USD 61,000 but fell in line with other asset classes.
Anil Rego, Founder and Fund Manager at Right Horizons PMS, commented, “US Fed rate cut can positively affect India by boosting capital inflows, enhancing stock market performance, and reducing borrowing costs. However, it can also lead to challenges for exports due to a stronger rupee.”
Economic experts believe that the US Fed’s decision will strongly boost stock market sentiments in India. Jyoti Prakash Gadiaa, Managing Director at Resurgent India, mentioned that the rate cut is likely to prompt the Reserve Bank of India (RBI) to consider a rate cut as well, especially since CPI inflation in India has been below the target rate of 4% in the last two months.
Raghvendra Nath, Managing Director of Ladderup Wealth Management, noted that the 50 basis points cut was a positive surprise and came at the right time. He added, “The market seems to be building another 50 bps rate cut in 2024 and a few further cuts in 2025. We feel that the Fed is not going to rush into reducing rates aggressively but act strictly based on data.”
Doubts Revealed
US Federal Reserve -: The US Federal Reserve is like a big bank for the United States. It helps control the money and keeps the economy stable.
Cuts Rates -: Cutting rates means lowering the interest rates, which makes borrowing money cheaper.
50 Basis Points -: 50 basis points is a way to say 0.50%. It’s a small change in interest rates.
Emerging Markets -: Emerging markets are countries that are growing fast in terms of their economy, like India.
Fund Flows -: Fund flows mean money moving from one place to another, like from the US to India.
Stock Market Performance -: Stock market performance is how well the stock market is doing, like if prices are going up or down.
Borrowing Costs -: Borrowing costs are the extra money you pay when you take a loan, like interest.
Stronger Rupee -: A stronger rupee means the Indian currency is worth more compared to other currencies, like the US dollar.
Reserve Bank of India -: The Reserve Bank of India is like the big bank for India. It helps control the money and keeps the economy stable.
Rate Cut -: A rate cut means lowering the interest rates, which makes borrowing money cheaper.