US Fed just made RBI’s job easier; may nudge Shaktikanta Das to ease monetary policy further

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Updated: August 1, 2019 12:43:08 PM

With the US Federal Reserve cutting interest rates for the first time in just over a decade, the possibility of another rate cut by the Reserve Bank of India (RBI) has opened up.

rbi, reserve bank of india, bimal jalanThe RBI has reduced monetary policy rates three times so far in this calendar year.

With the US Federal Reserve cutting interest rates for the first time in just over a decade, the possibility of another monetary policy rate cut by the Reserve Bank of India (RBI) has gained strength. The sluggish global growth may now further nudge RBI Monetary Policy Committee, led by Governor Shaktikanta Das, to tilt towards monetary policy easing, analysts said. “Regardless of the cut by the US Fed, we were anyways expecting a rate cut by the MPC in August 2019 policy review, with retail inflation well below the 4% medium term target and a variety of growth indicators pointing to a slack in economic activity and sentiment,” Aditi Nayar, Principal Economist, ICRA told Financial Express Online. The RBI has reduced rates three times so far in this calendar year.

Interestingly, the rate cut by the US Fed which was on a hawkish rate-hike trajectory just six months back, indicating a weakness in global growth has nudged the central banks across the world to tilt towards monetary easing. However, Indranil Pan, Group Economist, IDFC Bank shares a different view. The Fed decision may not have much impact on the RBI since rate cut was just 25 bps, he said while taking stock of the situation. Even the tone of the US Fed is less bullish than what the stock markets were expecting, he added. “RBI can continue to focus on domestic issues of inflation and growth to determine its monetary policy. I think RBI will cut by 25 bps in August and keep its communication of being “data dependant” for its future rates strategy,” he also told Financial Express Online.

Also read: Government revenues: Q1 data raises fears of huge slippage

What stock markets say

“The Market outlook appears bleaker than what it was even yesterday when we were hoping for more dovish statement from the Fed in addition to 25 bps rate cut. In the absence of any good news from Fed, Brexit or Trade War, the only thing that can give succor to Indian Market is more action to stimulate the economy by the RBI & the Govt,” Rajiv Singh, CEO, Karvy Stock Broking, told Financial Express Online.

Meanwhile, the US Fed rate cut has come for the first time since the financial crisis in 2008. The Fed said that the rates were cut in light of the implications of developments across the globe for the economic outlook, along with weak inflation pressure. The rate cut follows extended nudging from the US President Donald Trump, who was constantly pushing the US central bank for a rate cut.

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