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“The backdrop of a strong US dollar means that we are seeing continuous intervention in the FX market, which means there is an impact on domestic liquidity. In that backdrop, and the fact that our inflation is still somewhat higher…I don’t see a very real case for a policy rate cut in the February meeting at this point in time,” he said.
On January 29, the US Fed left its key rate unchanged after three consecutive cuts in late 2024.
Read Here | US stocks fall as Federal Reserve keeps interest rates unchanged
Gambhir believes liquidity is a more critical factor than interest rates in India, with a significant deficit of around ₹3 lakh crore in the banking system, which the RBI has been actively addressing. “We need more durable liquidity in this quarter than what RBI has so far supplied.”
RBI has already provided ₹1.5 lakh crore in durable liquidity, extending until the end of February but Gambhir estimates that at least ₹2-2.5 lakh crore of liquidity will be necessary to stabilise markets and prevent excessive pressure.
Axis Bank forecasts a 50-basis point leeway for future cuts, a dollar-rupee range of 87-87.50, and yields around 6-50-6.75%.
Read Here | RBI’s liquidity move does not necessarily signal a rate cut: CLSA India strategist
Steven Englander, Managing Director and Global Head of G10 FX Research and North American Macro Strategy at Standard Chartered Bank, expects four Fed rate cuts this year.
“We do think that the inflation numbers will get better, and we think that the labour numbers will get worse within a couple of months, and that will precipitate more aggressive cutting by the Fed than the market is now pricing.”
Englander predicts yields will be around 4.30-4.40%, and the dollar will follow the yields, potentially dropping by 2-3% as the macro picture becomes visibly more benign. However, he thinks dollar will rebound in second half of 2025.
Also Read | US Fed meeting a non-event: Citi’s Drew Pettit on what’s next for global markets
