US Fed Rate Cut: Will FOMC’s Pivot Compel RBI To Ease Further?
The US Federal Reserve slashed its key benchmark interest rate for the second straight meeting, in line with Wall Street expectations. The US central bank eased its monetary policy further during the eighth meeting of 2025 on Oct. 29, over sluggish growth in jobs despite the tariff risk. After a two-day review by the federal open market committee (FOMC), the new Fed interest rate stands at 3.75%-4.00%.
Impact on Indian Markets
A rate cut in the US usually translates to cheaper global liquidity, a weaker dollar and foreign investors scouring for yield. This could mean short-term impetus for the Indian markets. Market participants are closely tracking the spillover effect of the US Fed rate cut, with the Indian market being a key focus area, especially at a time when equity benchmarks are coming off after a period of consolidation.
On Oct. 30, domestic equity benchmarks fell sharply lower with the Sensex tumbling 592.67 points and the Nifty 50 declining to 25,877.85 level, as fresh foreign fund outflows and no clear clarity on the future course of rate action by the US Federal Reserve dampened investors’ sentiment.
The 30-share BSE Sensex tanked 592.67 points or 0.70 per cent to settle at 84,404.46. During the day, it dropped 684.48 points or 0.80 per cent to 84,312.65. The 50-share NSE Nifty tumbled 176.05 points or 0.68 per cent to 25,877.85.
RBI’s Monetary Policy
The Reserve Bank of India’s rate-setting panel kept the headline repo rate unchanged at 5.5% for the second consecutive time in October. The decision was unanimous by the Monetary Policy Committee, which also maintained a ‘neutral’ stance. RBI Governor Sanjay Malhotra-led MPC began easing the policy in February 2025 with a 25 basis point rate cut.
According to market experts, the Fed’s pivot might force RBI’s hand toward its own cuts in the coming months looking further ahead, as sustained low US rates could stoke capital outflows from India if domestic yields lag, prompting policy tweaks to defend the rupee without choking growth.
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Conclusion
The US Fed rate cut has significant implications for the Indian stock market and economy. While the short-term impact may be positive, the RBI’s monetary policy decisions will be crucial in determining the long-term effects. Investors should stay informed and up-to-date with the latest developments in the Indian stock market and economy.