Mumbai, Sep 19
The softening of US Fed rate by 0.5 percentage point (50 bps) is a welcome step, given the strengthening US economy with stable inflation, industry analysts said on Thursday, as the focus turns to India which is the fastest-growing economy in the world.
After the rate cut decision, the US dollar turned higher, putting pressure on gold like safe commodities.
Sanjeev Agrawal, President, PHD Chamber of Commerce and Industry (PHDCCI), said the US economy is expanding steadily with growing economic activity with slightly elevated but low inflation.
“We expect that the cut in the federal reserve rate could lead to a decline in returns on equity and a rise in gold prices,” he said
Moving forward, given the uncertain global economic environment, “we expect the US Fed to maintain its vigil stance and alter the rates given the inflation pressures, inflation expectations, and financial and international developments,” Agrawal noted.
The Fed has kicked off its easing cycle with a somewhat surprising 50 bps cut, with Chair Jerome Powell justifying it as “the Fed's commitment to not being behind the curve”, rather than a response to an imminent recession.
The US Fed interest rate hike is expected to encourage the central banks of other economies to follow.
According to Madhavi Arora, Chief Economist, Emkay global financial services, the RBI is likely to remain focused on domestic dynamics, with a first rate cut by December.
“A case for an early cut is still less likely, and we continue to see shallow cuts by both the Fed and RBI in this cycle,” Arora added.