Rupee, govt bond stronger after US Federal Reserve’s 50 bps rate cut
Source: Business Standard
The rupee opened stronger at Rs 83.68 against the US dollar on Thursday. Photo: Bloomberg
The rupee opened stronger at Rs 83.68 against the US dollar on Thursday as the greenback weakened following the US Federal Reserve’s first interest rate cut since the onset of the Covid-19 pandemic, reducing rates by 50 basis points. The rupee had settled at Rs 83.76 on Tuesday.
“The rupee’s recent rally reflects favourable domestic conditions and the impact of global monetary policy shifts. As the Fed’s decisions continue to sway markets, all eyes will be on the Reserve Bank of India’s response and whether the rupee can maintain its upward trajectory. For now, 84 will serve as a strong resistance level, while 83.50 will act as robust support,” said Amit Pabari, managing director at CR Forex.
Meanwhile, the benchmark 10-year government bond yield fell below the psychologically crucial mark of 6.75 per cent.
“The market opened flattish but later showed positive movement, and the overall sentiment is positive. The segment of the market that is buying will be known later in the day. The current range is expected to be 6.70 per cent to 6.75 per cent (yield on the benchmark bond),” said a dealer at a primary dealership.
The Federal Reserve began its easing cycle with a somewhat unexpected 50 basis point rate cut, implicitly acknowledging that rates may have been held too high for too long, a report by Emkay Global Financial Services noted.
Despite the sizable cut, Chair Powell reassured that the US economy remains strong and indicated that 50 basis points should not be seen as the standard pace of future cuts. The Fed’s dot plot was also adjusted lower, aligning with expectations of a soft landing rather than a recession. The tension between a significant rate cut and claims of a healthy economy raised questions, leading markets to anticipate more aggressive easing than what the Fed currently projects. This outlook caused a bear steepening of the US Treasury curve, as Powell pushed back against expectations of deeper cuts. While this marks the beginning of the Fed’s easing cycle, it provides emerging markets with room to initiate their own easing measures. However, given the low global volatility, the Reserve Bank of India is likely to remain focused on domestic factors, with its first rate cut expected by December.
First Published: Sep 19 2024 | 12:35 PM IST
