The US Federal Reserve has cut interest rates by 0.25% after 9 months, bringing the rates into the 4-4.25% range. Although the market had already discounted this small rate cut, the US stock market and gold prices showed a mixed reaction. There will be no immediate significant impact on India, but the RBI may implement limited rate cuts going forward.
Fed Rate Cut: For the first time since December 2024, the US central bank, the Federal Reserve, has cut interest rates by 25 basis points after a 9-month interval, bringing the policy rate to 4%-4.25%. Following this decision, US stock markets exhibited a mixed trend, and gold prices fell. Experts believe the Fed may implement two more cuts this year, but there will be no immediate significant impact on India. However, the rupee might receive some support, and the RBI could implement 25 basis point cuts in its upcoming meetings.
Reasons for the Rate Cut Decision
Last year, in 2024, the Fed had made a total cut of 1%. After that, interest rates were kept unchanged for 9 months. However, due to persistent market and political pressure, the Fed was compelled to reduce rates once again. US President Donald Trump had been pressuring the Fed for a long time to make borrowing cheaper, thereby reducing the burden on people's pockets. Similar demands were also being raised by the general public.
Amidst inflation concerns in the US, the latest figures indicated that the situation is currently under control. This is why the Federal Reserve decided to reduce policy rates.
How Much More Can Rates Be Cut?
The Fed Chairman has indicated that two more rate cuts are possible within the current year, 2025. Further reductions of 25 basis points each are anticipated in the policy meetings scheduled for November and December. This implies a potential total cut of up to 75 basis points this year.
If this materializes, US interest rates could decline to the range of 3.50% to 3.75%.
How Many Times Have Rates Been Cut So Far?
This marks the fourth time the Fed has reduced rates in the past year. Cuts of 50 basis points were made in September 2024, followed by 25 basis points each in November and December 2024. During that period, a total of 1% was reduced over three consecutive months. Following this, there was a long pause, and now, in 2025, a 0.25% cut has been made for the first time.
If the Fed acts on its indications, the total reduction by December will reach 1.25%.
Impact on Gold and Silver Prices
The rate cut also had an effect on the prices of gold and silver in the international market. Gold futures on the COMEX market closed down by $22.20 per ounce at $3,695.60 per ounce. Meanwhile, spot gold prices saw a slight increase, reaching $3,664.25 per ounce.
Silver prices remained largely stable. Silver futures fell by 0.24% to $42.05 per ounce, while spot silver closed with a minor gain of 0.16% at $41.74 per ounce.
Dollar Index Fluctuations
The dollar index also experienced volatility following the Fed's decision. It rose by approximately 0.10% to reach 96.97. During trading hours, it even touched a level of 97.03. However, over the past five trading days, the dollar index has declined by 0.55%. In a month, it has weakened by 1.65%, and over three months, by approximately 2%.
Looking at the entire year, the dollar index has dropped by as much as 10.59%. Over the last year, it has seen a decline of 3.60%.
What Will Be the Impact on India?
The question now is how this will affect India. In fact, a 0.25% cut by the Fed was already anticipated in the market. Therefore, it is unlikely that this news will have a significant impact on the Indian stock market. Experts believe that if the cut had been 0.50% or more, investor sentiment might have seen a boost.
There is also no likelihood of a major impact on India's currency market. However, a weakening dollar index could lead to some strengthening of the rupee. Additionally, domestic prices of gold and silver might see a minor decline.
