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Federal Reserve Cut and its impact on Indian Economy

What is the Global Trend w.r.t easing of interest Rates?

  • Central banks globally are moving towards monetary easing.
  • The European Central Bank and Bank of Japan are slated to meet this week.
  • In recent months, central banks of China, India, Malaysia, and the Philippines have opted for accommodating measures with South Korea and Indonesia being the latest.

How USA interest Rates Impact World Economy?

  • Because America has the world’s largest economy, every economic move that the US makes has immediate effects on the global markets.

Why the CUT has been introduced by USA Federal Reserve?

  • The United States Federal Reserve announced a quarter-percentage-point cut in interest rates — the first rate cut in 11 years.
  • What makes this rate-cut action — the first since the global financial crisis broke in 2008 — more significant is that barely six months previously, the US Fed was on a hawkish rate-hike trajectory, moving in the direction of bolstering the debt-laden American economy.
Federal Reserve interest rates

Federal Reserve interest rates

Why the rate cut by the Fed?

  • The Fed has cited concerns about the global economy and muted US inflation among the key reasons for the decision to cut rates, and signalled a readiness to lower borrowing costs further if needed.
  • At the same time, the central bank has underlined that the US economy grew “at a healthy pace” over the first six months of the year.
  • Financial markets had expected the quarter-percentage-point rate cut, which lowered the US central bank’s benchmark overnight lending rate to a target range of 2%-2.25%.

Current Affairs 2020

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