Fed rate cut to have limited impact on India: CEA Nageswaran

New Delhi: The impact of the US Federal Reserve's interest rate cut is expected to be limited in India, as domestic markets had already factored it in much of the move, V. Anantha Nageswaran, chief economic advisor to the central government, said on Thursday.

"The interest rate curves have moved ahead of the Fed action. The stock markets had moved ahead of the Fed action," Nageswaran said at an event.

He said it is difficult to predict whether the latest action by the US Federal Reserve will boost the global economy, as geopolitical conflicts continue amid a slowing global economy.

The US Federal Reserve cut interest rate by a larger-than-expected 50 basis points. Although a reduction was anticipated due to easing inflation in the US, the size of the cut surpassed expectations as most analysts had predicted a 25 bps decrease. The rate now stands between 4.75% and 5.00%, marking the first reduction since March 2020.

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"If everything else stays constant, then the rate cut by itself should be a positive because it lowers the dollar cost of capital, increases dollar liquidity in the world. Many countries, (including) developing countries that were affected by the tightening interest rates in the US between 2022 and 2023, will be relieved to see more dollar liquidity that happens," he said.

However, the move is a positive for emerging markets, he added. “And for India, especially if you look at the stock market, it is already attracting a lot of investor interest.” 

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Nageswaran also said India's private investment has been on the rise, contradicting the perception that it's lagging. “India's gross fixed capital formation went up to 30.8% in FY24, and not all of it came from public sector capex spending,” he said.

He highlighted that Reserve Bank of India's August data shows corporate fund mobilization for capital investments at a 12-year high.

The government allocated ₹11.11 trillion, or 3.4% of GDP, for capital expenditures in the FY25 budget, primarily to boost infrastructure and drive economic growth.