Despite the rate cut, the Federal Reserve has continued its hawkish stance. Such decisions are likely to have a direct impact on FII investment flows into India and the value of the rupee.
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Fed Rate Cut: The US central bank, the Federal Reserve, has cut interest rates once again. With a 0.25 percentage point cut, the federal funds rate has reached between 3.5%–3.75%. This is the lowest level in the last three years. This is considered the standard interest rate for short-term loans that banks give to each other in the US.
This is the third consecutive cut since September, bringing the total cut this year to 0.75%. The decision was expected by the market and was described as a “hawkish cut”, meaning that the Federal Reserve continued its hawkish stance despite the rate cut. Such decisions are likely to have a direct impact on FII inflows into India and the value of the rupee.
US economic forecasts
The Federal Reserve raised its 2026 GDP growth forecast to 2.3%, but said inflation is likely to remain above the Fed’s 2% target through 2028. Inflation was 2.8% in September.
Another key decision by the Federal Reserve
The Fed has announced that it will resume purchases of Treasury securities. The Fed, which decided at its October meeting to stop the decline in its balance sheet, will buy $40 billion worth of Treasury bills starting this Friday. This is a move that is expected to ease pressure on the spot market.
Impact on global markets
The Fed’s latest decisions are likely to increase volatility in global stock markets. The hawkish stance continues despite the interest rate cut. It suggests limited rate cuts in the future. This could disappoint equity investors. High US bond yields could put pressure on tech and growth stocks.
However, repurchasing Treasury bills is likely to increase liquidity in the short term.
Impact on India
If US interest rates remain high for a long time, there is a possibility of a withdrawal of investment from the markets. The impact of this may be seen in the form of fluctuations in the Indian stock market. However
India’s strong economic growth and subdued inflation are likely to keep markets somewhat stable. At the same time, the RBI is also unlikely to show any haste in cutting interest rates and is likely to continue with a cautious monetary policy, keeping in mind global conditions.
