US Fed’s 50-bps rate cut to have ‘muted impact’ on India but benefit emerging economies: CEA Nageswaran

The US Federal Reserve’s latest move to cut interest rates by 50 basis points will have a “relatively muted impact” on India even as it would be positive on the emerging economies, V Anantha Nageswaran, Chief Economic Advisor, said on Thursday.

“For India, the stock markets are already attracting lot of investor interest, and it has been so for the last several years, whether it is foreign or domestic or both. At the margin, impact will be relatively limited as it was not something that was being waited for this to happen,” Nageswaran said at a Deloitte organised event in the Capital. 

Nageswaran made it clear that it would be difficult to say that the US Fed rate cut would give a fillip to the global economy. 

“There are too many moving parts, and it would be presumptuous on my part to try and see the net impact on the world economy. Fed rate cut is not the only thing that matters. We have geopolitical conflicts everywhere and there is an all-important US election in November,” he said.

 He highlighted that the global economy has, in general, been slowing down and trend growth has been coming down. 

• Also read: Fed rate cut sparks mixed reactions in Indian markets 

“I think it (US Fed rate cut) will have different implications depending on how much has been already priced in. I think much of it has been priced in already by the markets. In that sense, the interest rate curve has moved in ahead of action. Stock markets had moved ahead of action,” Nageswaran added.

He pointed out the US stock market indices had on Wednesday post the US Fed rate cut announcement closed in the red by the end of the day. “Buy the rumour and sell the fact has happened,” Nageswaran said.

• Also read: Explainer: What the Fed’s interest rate cut means for everyday Americans

Foreign flows

Later Debasish Mishra, Chief Growth Officer, Deloitte Touché Tohmatsu India LLP, told businessline that he expects foreign flows into India to improve on account of the latest US Fed rate cut. “We also expect the Reserve Bank of India to go in for a 25-basis points cut in October or before the end of the current calendar year,” he added.

Mishra said that Deloitte sees India’s economic growth at 7-7.2 per cent this fiscal, noting that second half would see a pick-up after sluggish government expenditure (due to elections) in first four months this fiscal. “We expect both government and private capex spend to pick up big time in second half,” he said.