Central banks worldwide are lowering interest rates to boost economic growth, while the U.S. Federal Reserve's outlook remains uncertain.
On Friday, the Reserve Bank of India lowered its repo rate by 25 basis points to 6.25%, Governor Sanjay Malhotra said in a livestreamed address. This move, anticipated by economists, marked the first time in nearly five years the central bank has reduced rates. The RBI projected real economic growth to reach 6.4% for the current fiscal year, the country's lowest in four years, and 6.7% for fiscal year 2025-26. The RBI's decision follows similar actions by other central banks globally.
A day earlier, the Bank of England reduced its interest rates by 25 basis points to 4.5%, its first cut of the year. All members of the monetary policy committee voted to lower rates, with two out of nine favoring a larger 50 basis point decrease. Governor Andrew Bailey indicated anticipation of further rate cuts this year. The European Central Bank also lowered its rates by 25 basis points on January 30th. These coordinated rate reductions reflect a broader trend among economies aiming to stimulate economic growth. However, the U.S. Federal Reserve appears to be taking a different approach. It remains uncertain if the Fed will implement the two rate cuts projected for 2025, as initially forecast in December, given the ongoing uncertainty surrounding the economic impact of President Donald Trump's policies. Moreover, Trump has seemingly backed off from exerting pressure on the Fed. Prior to Trump's inauguration, the U.S. dollar began strengthening, reaching its highest level in over two years, according to the U.S. dollar index. This has already impacted businesses like Amazon, which attributed the currency's strength to a potential decline in its expected revenue for the current quarter. While the U.S. may currently hold an advantage over other economies and stock markets, this edge can be a double-edged sword
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