The US Federal Reserve recently cut its rates sharply by 50bps to facilitate spending and investment in the country. The Fed lowered its interest rate for the first time in four years to 4.75-5% amid a cooling labour market and easing inflation rates.
The Fed is also expected to systematically cut rates to about 250 bps till 2026
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With this move, the India currency has appreciated with respect to the US Dollar to about Rs 83.69.
Talking to BT about the impact on Indian economy, experts said that RBI monetary policy will be a function of domestic inflation. Dharmakirti Joshi, Chief Economist at CRISIL said, “Even though RBI monetary policy is dependent on US Fed Reserve, a lot will depend on CPI rates. Once CPI rates are in check only then can we see RBI going ahead with any rate cuts. The situation will be clear after monsoon season ends.” He also said that currency rate will have impact the export income and excess appreciation of currency can dent export incomes.
Madan Sabnavis, Chief Economist, Bank of Baroda said that rate cuts didn’t come as a big surprise to the Indian markets and some effect was seen on the currency rates and a minor effect on bond yields. He also assured that RBI’s policy will be majorly dependent on the domestic factors like CPI and US Fed will majorly impact the currency rates.
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Speaking about the long-term growth of the economy, Joshi said that the Indian economy is likely to be growing and a rise in per capita income is also expected as GDP increases and population growth plateaus.
Sabnavis added that the per capita income will grow when employment opportunities are created in organised sectors and focus is given to the quality of growth.
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