RBI likely to track US Fed on rate cuts

Muted Effect

• Less impact on real economy
• Low levels of corporate leverage
• Households benefit from lower mortgage rates
• But also lose on income from savings

New Delhi: Fed’s Dovish comments portend three rate cuts in CY24 and have turned market sentiment decisively. We expect the RBI to follow suit with concurrent rate cuts, Emkay Global Financial Services said in a report.

The impact would be more pronounced at the short end, given that long bonds have not tracked policy rates on the way up.

The impact on real economy should be muted, given the low levels of corporate leverage. Households benefit from lower mortgage rates, but also lose on income from savings, while non-mortgage personal loans will see limited rate cuts, the report said.

This is, therefore, an atypical rate cycle and the impact on corporate earnings is limited.