US Fed Rate Cut: The decisions of the US central bank, the Federal Reserve, impact central banks around the world, including the RBI. The RBI has already reduced interest rates by 100 basis points, or 1 percent, this year (2025). This has reduced the EMI on a home loan of ₹5 million by approximately ₹3,164.
The US central bank, the Federal Reserve, reduced interest rates by 0.25 percent on September 17th. This is the first time the Fed has reduced interest rates since December 2024. Following this reduction, interest rates in the US have fallen to 4-4.25 percent. It was already anticipated that the US central bank would reduce interest rates by 25 basis points. Significantly, this is the first time the Fed has reduced interest rates since Donald Trump became President of the US on January 20th. The question is, what impact will this move by the Fed have on investors, depositors, and others in India?
Fed rate cut expected to impact RBI policy
The decisions of the US central bank, the Federal Reserve , impact central banks around the world, including the RBI. The RBI has already reduced interest rates by 100 basis points, or 1%, this year (2025). This has reduced the EMI on a home loan of Rs 50 lakh by approximately Rs 3,164. Following the Fed’s interest rate cut, the RBI may also reduce interest rates in its next monetary policy. This will reduce interest rates on other loans, including home loans.
Investors’ interest in the stock markets increases when interest rates decrease.
Generally, there is happiness in the stock markets when there is a reduction in interest rates. Due to the decrease in yields on other assets in the world, the interest of investors in the stock markets increases. Investment of foreign funds increases in emerging markets. However, the investment of foreign funds in India is not expected to increase immediately due to the reduction in rates by the Fed. This is due to the high valuation of Indian markets. Market expert Ajay Bagga said, “Due to the high valuation of Indian markets and single digit earnings growth, foreign funds are not showing interest in Indian markets.”
MPC may take decision to reduce interest rate
The Fed’s rate cut could impact the RBI’s Monetary Policy Committee (MPC). The committee could decide to further ease monetary policy. However, the RBI’s decision to reduce rates will depend on several factors. The RBI may wait until the full impact of the interest rate cut this year is felt. Consequently, prices in the Indian bond markets may remain range-bound. Foreign investor interest in the Indian bond market has increased. Since August, $2 billion in foreign investment has been received in the bond market.
Gold prices are expected to continue rising
Gold’s luster increases when global interest rates fall. Gold has returned approximately 27% this year. Experts say gold prices are expected to remain attractive. Following the Fed’s rate cut, the US dollar will weaken, making gold even more attractive to investors in emerging markets, including India. Gold typically strengthens in an environment of dollar weakness and falling interest rates.
Fixed deposit interest rates may decrease if RBI cuts rates.
If the RBI follows the Fed in reducing interest rates, bank fixed deposit interest rates could decline. Those interested in fixed deposits can open long-term fixed deposits at current interest rates before the RBI cuts interest rates in October. Experts say that if interest rates on fixed deposits or recurring deposits decrease, their attractiveness to investors will diminish.
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