US Fed keeps interest rate unchanged, sees no action until 2020; what it means for India

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Updated: December 12, 2019 4:12:55 PM

Federal Reserve’s move to keep the interest rates unchanged is positive for the developing markets including India, analysts said.

The US FED also signaled it may stay on hold on rates through 2020, keeping it on the sidelines in an election year.

Federal Reserve’s move to keep the interest rates unchanged is positive for the developing markets including India, analysts said. The fall in the US dollar after the decision resulted in a decline in the US dollar index, which is being seen as bullish for emerging markets, investment advisor Sandip Sabharwal told Financial Express Online. “The only issue is that inflationary pressures seem to be building up in the USA and to that extent whether FED will actually be on hold or will need to hike is something we need to see. The next meeting of the US Fed will need to be keenly watched,” Sandip Sabharwal also said.

The US FED also signaled it may keep rates unchanged until 2020, on the sidelines of an election year. “Our economic outlook remains a favorable one despite global developments and ongoing risks,” FED Chairman Jerome Powell added.

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“India has not been able to benefit from the global rally in equities due to its own domestic challenges. As the fed has reversed its tightening albeit, in small proportion, we expect India may get some incremental flows once the earnings recover,” Abhimanyu Sofat, Head of Research, IIFL told Financial Express Online. The policy decision left the FED’s benchmark overnight lending rate in its current target range between 1.50 per cent and 1.75 per cent, three-quarters of a percentage point below where it started the year.

“In our view, the mpc is likely to leave the repo rate unchanged in Feb 2020. Domestic inflationary pressures will guide whether there is space for one last rate cut in the remainder of 2020,” Aditi Nayar, Principal Economist, ICRA told Financial Express Online.

“We strongly feel that it would be extremely risky for RBI to even remotely consider coordinating interest rate policies with that of the Fed’s in 2020. The Fed announcement comes on the back of the US economy clocking robust growth, expansion, and falling unemployment whereas India’s economic problem is the diametrically opposite phenomenon it is an opportunity for the RBI to chart out an absolutely uncorrelated policy path focused on resuscitating the needlessly faltering India growth story over the next few quarters,” Ranjan Chakravarty, Economist and Product Strategist at Metropolitan Stock Exchange (MSE) said.

Meanwhile, on 5 December, the Reserve Bank of India (RBI) had kept the repo rates unchanged at 5.15 percent in its fifth bi-monthly monetary policy statement for 2019-20.

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