InvestorQ : What are the key highlights of the US Fed rate cut announcement and what does that mean for Indian markets?
Aashna Tripathi made post

What are the key highlights of the US Fed rate cut announcement and what does that mean for Indian markets?

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Tisha Malhotra answered.
1 year ago
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The Fed did cut the rates by 25 bps or 0.25% on July 31st. The Fed is the US equivalent of the RBI in India. Here is what you need to know about the implications.

· The Federal Open Markets Committee (FOMC) took a call to cut the Fed funds rate by 25 basis points. This effectively took the benchmark rate from a range of 2.25-2.50% to a new range of 2.00-2.25%. This was the first rate cut in 10 years.

· The CME Fedwatch tool (calculated from fed fund futures trading data) was split between a 25 bps rate cut and a 50 bps rate cut. The FOMC underlined that the rate cut was being undertaken in the light of the improved growth, higher levels of consumer spending, lower rate of unemployment and interest rates.

· The Fed has not ruled out further rate cuts, but avoided giving any commitment on the direction of rates. Fed will wind up its bond buying program 2 months earlier to keep the liquidity levels in the system comfortable.

· There are 2 takeaways for the RBI from the Fed action. The rate cut signals a shift towards easy money policy across central banks. This gives the RBI the required comfort level in cutting rates in its August policy.

· The rate cut is significant also because it could be the start of a rate reversal cycle. Fed had hiked rates sharply in 1998, 2004 and 2016. The subsequent cut in rates on the first two occasions was sharper than the hike in rates. This rate cut could mark the start of the rate cut cycle?

· For Indian equity investors, the good news is that in the past this has been the right time to invest in equities. So, to answer your question from an equity investor’s perspective, this could be the time to take your shopping baskets out and start buying stocks.

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