Fed Cuts 25 bps – What It Means for India
Fed Cuts 25 bps – What It Means for India
On October 29, 2025, the US Federal Reserve cut its benchmark interest rate by 25 basis points to a range of 3.75%–4.00%. This is the second rate cut of the year, and the Fed also announced it will halt balance sheet runoff from December 1. The decision came amid rising economic uncertainty due to the US government shutdown, weaker job data, and slower consumer spending.
The move signals that the Fed is turning cautious about growth, though Chair Jerome Powell emphasized that another rate cut in December is “far from guaranteed.” Markets initially reacted positively, with global equities rising and the dollar easing slightly.
For India, this development is largely positive in the short term. Lower US interest rates often lead to a decline in US bond yields and encourage foreign investors (FIIs) to put more money into emerging markets like India. This supports both the stock market and the Indian rupee.
December Prediction
- Probability: Markets had initially expected another rate cut in December, but Powell’s cautious remarks reduced that probability.
- If the Fed cuts again: Expect continued FII inflows, a softer dollar, and support for Indian equities and bonds.
- If the Fed pauses: US yields could rise again, leading to volatility and pressure on Indian markets, especially in rate-sensitive sectors.
Impact on the Indian Market
- Foreign Flows: Lower US rates attract more FII inflows into India, boosting market sentiment.
- Currency & Bonds: Softer US yields reduce pressure on the rupee and lower domestic bond yields, improving liquidity.
- Sector Performance: Banking, real estate, and cyclical sectors like metals and energy benefit most from rate stability.
- Volatility Risk: If the Fed holds rates in December, it could trigger short-term volatility in equities and the currency market.
By Nehal Taparia
This content is for educational and knowledge purposes only and should not be considered as investment or Trading advice. Please consult a certified financial advisor before making any investment or Trading decisions.
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Q1. Why does a Fed rate cut affect India?
Because lower US rates reduce returns on US bonds, encouraging investors to move funds to higher-yielding markets like India, driving inflows and market support.
Q2. Will there be another rate cut in December?
Q3. What if the Fed pauses in December?
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