Fed’s Rate Cut: What it means for Indian borrowers, savers, and investors

Home Loans: RBI has already cut rates by 100 bps in 2025, lowering EMIs by around Rs 3,164 on a Rs 50 lakh loan. However, for borrowers, the Fed’s move is likely to influence the RBI’s stance. If the RBI cuts repo rates, borrowing costs could drop further.

“Fed rate cut creates incentive for RBI to maintain its dovish stance and is expected to cut repo rate by 25 basis points in October, bringing it down to 5.25%,” said Abhishek Kumar, SEBI-Registered Investment Adviser.

Home loan borrowers with EBLR-linked loans will see faster transmission of rate cuts, while those on MCLR would experience it with a lag, added Kumar.

Equity: Equity markets typically cheer rate cuts. Lower global yields make stocks more attractive relative to bonds, and foreign inflows often rise in emerging markets. However, India may not see foreign inflows turn positive immediately even after the Federal Reserve’s rate cut. Analysts warn India is unlikely to be the first port of call for global investors.

“India’s high valuations, coupled with single-digit earnings growth, are keeping foreign investors underweight,” said market expert Ajay Bagga. “South Korea and China have emerged as the preferred destinations, thanks to robust earnings momentum and investor enthusiasm around technology and artificial intelligence plays. The Fed’s rate cuts may begin to shift sentiment by year-end, particularly if trade tariffs ease.”.

Staying invested through systematic plans and focusing on domestic growth themes remains a prudent path.

Debt Strategy: For Indian debt investors, the Fed’s measured approach creates room for the Monetary Policy Committee (MPC) to consider additional easing. The timing, however, will depend on whether the RBI chooses to wait for full transmission of earlier rate cuts or acts proactively to reinforce government-led growth measures. "In the near term, as markets await greater clarity, Indian debt markets are likely to remain rangebound. That said, foreign investor interest has picked up meaningfully — with $2 billion in inflows since August. If global sentiment improves, duration strategies could come back into focus, positioning debt investors to benefit from a ‘neutral now, bullish later’ outlook,” said Kruti Chheta, Fund Manager & Fixed Income Analyst, Mirae Asset Investment Managers (India).

For bond markets, the focus is also shifting to India’s borrowing calendar even as global cues remain mixed. Lakshmi Iyer, Group President – Investments & CEO, Bajaj Alternates, said, “Fed rate cuts were in line with what the market anticipated. Indian bond markets will focus more on the second half borrowing calendar by the government of India for the next cues. Till then, we expect the market to remain within 10 bps of the current levels.”

Historically, Fed easing has drawn foreign money into Indian debt, boosting bonds. When it combines with the expected repo rate cut by the RBI, the yields of G-Secs and high-grade corporate bonds may decline further. New investment in the bond market should be targeted towards medium-term duration bonds, Kumar explained.

Gold: Gold continues to shine whenever global interest rates fall, as lower yields make non-interest assets attractive. The yellow metal has given a return of around 27% this year. “Gold is expected to remain attractive. Expected weakening of the US dollar from Fed rate cuts would make gold more attractive to emerging market investors as a hedge against currency and inflation risks,” said Kumar.

A softer U.S. dollar and falling rates usually strengthen gold’s appeal. "The yellow metal continues to serve as a hedge against inflation, currency volatility, and geopolitical uncertainty. A modest allocation, around 5 to 10 per cent of a portfolio, remains a useful policy," said  Viral Bhatt, Founder, Money Mantra

Fixed Deposits: For savers, the outlook is less rosy. If the RBI follows with more cuts, banks may slash FD rates further. FD investors should consider locking in current rates using longer-term FDs before the RBI's anticipated October cut.

“Fixed deposits and recurring deposits may struggle to deliver returns above inflation if rates continue drifting lower. A more balanced approach of laddering deposits across maturities and adding debt mutual funds or short-term bonds can help protect real returns,” said Bhatt.