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Chief Economic Advisor V Anantha Nageswaran (Photo: PTI)
The impact of the US Federal Reserve’s rate cut might be muted in India as much of it was already priced in, Chief Economic Advisor V Anantha Nageswaran said on Thursday.
Speaking on the issue, Economic Affairs Secretary Ajay Seth told reporters that the Fed rate cut would not have a significant impact on foreign inflows into India.
“It is a positive for the global economy, including the Indian economy. It is a 50 basis point cut from a high level. I don’t see that making any significant impact on inflows. We have to see from where the US interest rates levels are. We have to see how other economies’ markets behave,” Seth said.
The US Federal Open Market Committee on Wednesday voted to cut the federal funds rate target range by 50 basis points to 4.75-5.00 per cent from 5.25-5.50 per cent.
Addressing the Deloitte Government Summit 2024, the CEA said that the Indian stock market is already attracting investor interest and overall the rate cut is positive for emerging markets.
Nageswaran added, “Stock markets had moved ahead of the rate cut… It is difficult to predict whether the rate cut per se will be a fillip to the global economy because other things are not constant.”
He was referring to the geopolitical conflicts continuing amid a slowing global economy.
“If everything else stays constant, then the rate cut by itself should be a positive because it lowers the dollar cost of capital, increases dollar liquidity in the world,” Nageswaran said.
He said that many countries, including developing countries, will be relieved to see dollar liquidity since they have been affected by the tightening interest rates in the US between 2022 and 2023.
The US central bank had kept interest rates at an over two-decade high for 14 months. The Fed’s announcements come days before the Reserve Bank of India’s Monetary Policy Committee (MPC) meeting scheduled on October 7-9.
Replying to whether RBI would start to cut interest rates, Seth said that it was for the MPC to take a decision at apt time.
“Their decision is based on what is good for the Indian economy. You should not read too much into the event which happened yesterday,” Seth said.
The RBI has maintained status quo on the rates since February 2023.
First Published: Sep 19 2024 | 4:24 PM IST
