DEA Secretary Ajay Seth says FED rate cut expected to improve India’s economy: Report

India's Department of Economic Affairs (DEA) Secretary Ajay Seth expects the United States Federal Reserves (FED) 50 basis point (bps) rate cut decision to be good for the Indian economy likely, Moneycontrol reported on Thursday, September 19, quoting the secretary.

The US FED cut its key benchmark interest rates by an aggressive 50 basis points on Wednesday, September 18, its first rate cut since 2020. The central bank unwinds from its restrictive policies to address the inflation situation in the country.

Seth told the news portal that the move was expected to have a favourable impact on the global and Indian economies.

The US's central bank cut its interest rate to 4.75 per cent-5 per cent for the first time in four years, which aligns with the Wall Street estimates. “We made a good strong start and I am very pleased that we did,” said Federal Reserve Chairman Jerome Powell as per a Reuters agency report.

According to the report, Seth disagreed about the 50-basis points rate cut being too big and said that a reduction from high levels would not cause significant market volatility.

Seth told Moneycontrol that the foreign portfolio investment (FPI) into India is not expected to undergo a major shift, and the situation will not need close monitoring to ensure market stability. 

In August 2024, US inflation fell to 2.5 per cent, compared to its peak of 9.1 per cent in the middle of 2022. The latest data is not far from the US Federal Reserve's 2 per cent inflation target, and this marked the first rate cut in four years. According to the report, the US Federal Reserve is signalling a potential easing in global financial conditions.

India's Reserve Bank of India (RBI) has kept its key benchmark interest rates unchanged for over 18 months. The Monetary Policy Committee (MPC) will meet in October to discuss the bi-monthly policy review; it will be closely tracked to see if RBI follows FED's lead.