BackOpinion | One less worry
The US Federal Reserve has cut its policy rate by a quarter-percentage-point for the third time in a row
PremiumThe US Federal Reserve has cut its policy rate by a quarter-percentage-point for the third time in a row. The reduction was on predicted lines, so it should not surprise anyone. Yet, there is reason for India to be pleased, as reflected in stock market indices. The BSE Sensex, for example, seems to be holding firm above the psychologically important 40,000 mark. Had the Fed not eased the supply of dollars and instead opted to leave its key policy rate steady, the Reserve Bank of India’s task of stimulating domestic growth would have got slightly complicated.
That’s because our economy needs more rate cuts by RBI to strengthen its pace of expansion, which has slowed to a five-year low. In doing so, however, the central bank risks hurting the attractiveness of Indian debt assets, which have traditionally appealed to global investors thanks to India’s relatively higher rates of interest. Had the Fed held rates steady, RBI might have had to worry about possible outflows of capital while lowering its own policy rate.
Now that the Fed has done what was expected, RBI should be able to focus on domestic economic data to chart its future policy course. Inflation has remained broadly in check, although September’s rise to nearly 4% could build a case for a pause in its easing cycle. To be sure, rate cuts still ought to be on the cards until there is data to show that September’s rise in price levels wasn’t a one-off. Thankfully, the Fed has given RBI one less thing to worry about.
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