The recent US Federal Reserve 25 basis point rate cut (bps) has turned the spotlight to emerging markets. Economists and experts Moneycontrol spoke to, however, said the Reserve Bank of India (RBI) is unlikely to follow suit and will focus on domestic cues such as inflation and growth numbers before taking a decision.
Though the Fed’s move gives RBI more space, the central bank’s focus will remain firmly on the domestic growth–inflation balance, Dhiraj Nim, economist and FX Strategist at ANZ Research, said.
Markets would not be surprised if the RBI holds rates in the October review, as no immediate cuts are priced in, Nim said.
On September 18, the Federal Reserve cut its benchmark interest rate by 25 bps to 4-4.25 percent range. This was the first reduction since December and also the first of President Donald Trump’s second term.
“In India, the Fed's actions could attract foreign capital, strengthening the rupee and benefiting stock indices like the Sensex and Nifty,” said Rajesh Palviya, senior vice-president, research, Axis Securities.
October meet
Moneycontrol has written that bankers have ruled out a rate cut by the RBI in the upcoming monetary policy review but they do expect one more cut in the current fiscal.
The RBI’s monetary policy committee is to meet from September 29 to October 1.
The expected pause will be the second such decision after the August policy. The central bank has reduced the repo rate by 100 basis points since February before hitting a pause in August.
Madhavi Arora, chief economist at Emkay Global Financial Services, said the Fed’s move adds to RBI’s policy flexibility but cautioned that the central bank’s near-term inflation focus may be overdone.
“The patchy global growth narrative, tariff noise, and a generally weaker broad USD have allowed EM central banks, including the RBI, to be less focused on the FX fight. Besides, impending Fed easing could still give more breathing space to the RBI to ease,” Arora said.
Experts broadly agree that while the Fed cut reduces external constraints, the RBI will calibrate its stance based on domestic inflation trends. With India’s inflation undershooting in recent months and Asia showing signs of a disinflationary tilt, the central bank may eventually resume easing, but not as a knee jerk reaction to the Fed’s move.
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