The US Federal Reserve’s Federal Open Market Committee (FOMC) has cut key interest rates by 50 basis points, bringing them in the 4.75-5% range. This rate cut comes four years after the last reduction in March 2020 and 14 months after a policy pause during which no rate hikes were implemented.

Simply put, the US Federal Reserve, equivalent to the Reserve Bank of India here, has reduced the rate at which it lends money, primarily to US banks. Consequently, the rate at which banks lend to individuals and corporates will also reduce, giving a boost to the economy due to anticipated higher borrowings and spends.

The Indian government has viewed this move as a ‘positive’ sign.

"Difficult to assess the Fed rate cut’s precise impact on the world economy at this point but it’s a positive," Chief Economic Advisor to the Government of India, V. Anantha Nageswaran commented.

"It is a positive for the global economy, including the Indian economy. It is a 50 basis points cut from a high level. I don't see that making any significant impact on inflows. We have to see from (the point of) where the (US interest rates) levels are. We have to see how other economies' markets behave," India’s Economic Affairs Secretary Ajay Seth stated.

In the past, Fed rate cuts have had an impact on the RBI’s monetary policy as well. It remains to be seen whether the RBI’s Monetary Policy Committee (MPC) will follow suit and cut its repo rate. RBI Governor Shaktikanta Das has stated that reining in inflation is the RBI’s primary responsibility. In the context of Consumer Price Index (CPI) numbers that were released earlier this month, Das had said, “Inflation has moderated from its peak of 7.8 per cent in April 2022 into the tolerance band of +/- 2 per cent around the target of 4 per cent, but we still have a distance to cover and cannot afford to look the other way.”

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