The American Fed Reserve cut interest rates by 0.50% on Wednesday night Indian time. There is a difference of opinion among experts in America itself regarding this decision. According to him, the current situation was not conducive for such a big cut. The American stock market also closed lower after this decision. The Fed has clarified that it will cut rates twice by 0.25% in 2024. That means the Fed could cut interest rates by 1% in a full year. This cycle of cuts is projected to continue till 2026. The total cut will be up to 2.50%. That is, after the year 2008, the biggest cycle of reduction in interest rates has already started. The impact of this cut was seen on the Indian stock market on Thursday. Sensex-Nifty hit record highs.
Less chance of 'cheap funds' coming into sharemarket, rupee will strengthen-Dr. Soumyakanti Ghosh, Economist, SBI
- Importance of Ratcut in America? Until now, it was believed that if the interest rates fall there, cheap funds will come in the markets around the world. That is why central banks around the world, including RBI, were following the path of the US Fed and reducing interest rates.
- This time will be cut? This time the situation is different. This makes it less likely for cheap funds to enter the sharemarket. As the dollar weakens, the rupee will strengthen. Rupee will become more competitive in the world. India's economy is strong. There is local demand. This will increase investment in the country's bonds.
- Then when will interest reduction be done? RBI in India will not cut interest rates now. Have to wait for reduction in car and house EMIs.
- Why won't RBI cut interest rates? RBI will not decide to cut interest rates immediately after the Fed. It will take this decision based on inflation and other local factors. That means you will have to wait longer for home-car loan reduction. RBI will not cut interest rates in 2024. Interest rates are expected to decline till Feb-2025.
- How much will our stock market be affected? There will be limited impact on the market. Its valuation is still high. The market cap is 141% of the country's GDP. It was 93% in March-2023. Investment in domestic bond market may increase.
- Will the Indian Rupee strengthen? The economy of the country is strong. This is due to strong domestic demand. A fall in interest rates will weaken the dollar index.
Image Credit: (Divya-Bhaskar): Images/graphics belong to (Divya-Bhaskar).
