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Nirmal Bang Report
Recent data points to mixed evidence, both for and against a rate cut in the U.S. We had expected rate cuts beginning in June 2024 by the ECB, with the Fed following thereafter. Yet, Fed rate cuts have now been pushed back. However, we continue to see room for up to two cuts in 2024.
While the U.S consumer has so far been resilient, incremental data points to signs of diminishing excess savings and rising debt burden, particularly among the younger/lower income group. The labour market is also gradually slowing. While inflation may take time to hit the Fed's 2% target as long as it is directionally heading lower, we believe that the Fed will eventually initiate the rate cut cycle.
The Fed's reduction in Quantitative Tightening also points to some concerns around excessively high interest rates. The burgeoning debt of the U.S government suggests that it would be carrying the greatest burden of higher for longer rates, suggesting a slightly higher tolerance for above target inflation and a push for lower rates.
In India, we believe that the Reserve Bank Of India is likely to cut only after the Fed and we expect a shallow rate cut cycle of ~50 basis points (~25 basis points in FY25) as excessively high real rates will likely impinge on growth with a lag.
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