US Fed Rate Cut Unlikely to Impact Foreign Inflows Into India: Economic Affairs Secretary Ajay Seth

Economic Affairs Secretary Ajay Seth stated that the recent 50 basis points cut in the US Federal Reserve's interest rate is unlikely to significantly affect foreign inflows into India. He emphasised that the RBI will make its decisions based on the Indian economy, not just global changes.

New Delhi: The US Fed rate cut of 50 basis points is unlikely to have any significant impact on foreign inflows into India, Economic Affairs Secretary Ajay Seth said on Thursday. He said the US Federal Reserve has done what it assesses is good for the largest economy in the world, but the RBI will make a decision on interest rate cut keeping the Indian economy in mind.

"It is a positive for the global economy, including the Indian economy. It is a 50 basis point cut from a high level. I don't see that making any significant impact on inflows. We have to see from (the point of) where the (US interest rates) levels are. We have to see how do other economies' markets behave," Seth told reporters here.

Late Wednesday, the US Federal Open Market Committee voted to cut the federal funds rate target range by 50 bps to 4.75-5 per cent, from 5.25-5.50 per cent, against expectations of a cut half that size. The US central bank had kept interest rates at an over two-decade high for 14 months.

"The US economy is, basically, fine," Fed Chair Jerome Powell had said. The Fed is seen cutting interest rates by a further 50 bps in 2024. The Fed's rate cut comes ahead of the Reserve Bank of India's Monetary Policy Committee meeting on October 7-9.

To a question on whether RBI would start to cut interest rates, Seth said," This is for MPC to take a decision at apt time. Their decision is based on what is good for the Indian economy. You should not read too much into the event which happened yesterday."

Economists don't expect the Indian central bank to begin its own easing cycle next month.

"India has remained well insulated from the rest of the world's rate movements for now and the tremendous rally in risk assets plus projected economic growth keep an inflationary underlying force in the economy. RBI MPC meets next month and a rate cut may remain elusive for now, and perhaps not required yet, in India," said Vishal Goenka, Co-Founder of IndiaBonds.com.

The RBI has left the repo rate unchanged at 6.50 per cent since February 2023 as it tackled to bring down inflation. As per the latest data, headline retail inflation in August came in below the central bank's medium-term target of 4 per cent for the second month in a row, standing at 3.65 per cent.