US Fed To Hold Rates Steady In July, Tariff Above 20% To Disappoint Indian Market: Dr VK Vijayakumar
The US Federal Reserve is set to announce its new interest rate and monetary policy decision on July 30, after a two-day Federal Open Market Committee (FOMC) meeting. The Fed interest rate decision, coming right before the August 1 deadline of US tariffs, holds key significance for the Indian and global markets.
Dr VK Vijayakumar, Chief Investment Strategist, Geojit Investments Ltd, spoke to NDTV Profit in an exclusive interview and said that the US central bank will likely continue its pause on interest rates and that he foresees two rate cuts in 2025.
US Fed Policy Decision And Its Impact On Indian Market
The US Federal Reserve is set to announce its new interest rate and monetary policy decision on July 30, after a two-day Federal Open Market Committee (FOMC) meeting. The Fed interest rate decision, coming right before the August 1 deadline of US tariffs, holds key significance for the Indian and global markets.
Dr Vijayakumar said that the market has almost discounted a pause in rates. The Fed funds futures indicate that. Therefore, a pause by the Fed is unlikely to surprise the market. The August 1 deadline, going by previous experience, is likely to be extended again for further negotiation to reach deals with countries with whom trade deals are pending.
India-US Trade Deal: Will It Trigger A Rally In Indian Market?
Dr Vijayakumar believes that the near consensus view is that an interim deal is likely between the US and India even though there are differences on areas like market access to the US in segments like the dairy industry. India is unlikely to offer any concessions in these areas. Yet, a deal is possible. What is unknown at this stage is the tariff rate that will be imposed on India.
If the tariff rate is lower than 20%, that would be a positive, which the market will welcome. Any disappointment on this front would be a negative from the market perspective. More important than the tariffs, from the market perspective, is the corporate earnings in India, which has slowed down in FY25 and is showing only signs of modest recovery in FY26. This is the biggest challenge for the market in the short run.
Will FIIs Continue To Be Cautious On Indian Market?
Dr Vijayakumar said that FIIs were big sellers in India in the first three months of 2025. In the next three months, they turned buyers. In July, the FIIs again changed their strategy from buying to selling. FIIs are more concerned about the valuations in the market.
When the valuations reach high levels, they sell and move money to cheaper markets and vice versa. FIIs are here for the long-term. Their strategy in the short-term – whether to buy or sell – is largely decided by the valuations and earnings prospects of India vi-a-vis other markets.
Will The US Fed Cut Rates In 2025?
Dr Vijayakumar expects two rate cuts in 2025 by 25 basis points each perhaps by September and October.
RBI: Is It In A Better Position To Support India’s Economic Growth?
Dr Vijayakumar said that the US economy is slowing down and the tariff-related disruptions are likely to accelerate the slowdown. However, since higher tariffs can spike inflation, the Fed is likely to cut only after ensuring that inflation remains under control. The Indian economy is in good shape. The macros are solid: GDP growth rate, fiscal and current account deficits, forex reserves and inflation are all positive. The challenge is in micros – corporate earnings.
CPI inflation in India is likely to undershoot the RBI’s estimate of 3.7% for FY26. But the MPC is unlikely to go for another rate cut soon. The RBI has already declared that they have front-loaded rate cuts. The RBI has gone the extra mile in cutting the CRR by 100 basis points sending a message of strong monetary stimulus. The RBI is likely to wait and watch before further rate actions.