The US Federal Reserve’s monetary policy is among the most important factors in global capital markets. Borrowing costs in the world’s largest economy, set by the central bank on a bimonthly basis, have a large bearing on the movement of money (read dollars) in the global financial system.
The Federal Open Market Committee (FOMC), headed by the Fed Chairman, decides on the interest rate. When rates are cut, money typically moves out of safe dollar assets like US Treasury bonds into riskier, high-return bets in emerging markets, including India.
The FOMC is widely expected to deliver its third straight interest rate cut later on Wednesday. The last five instances of US Fed rate cuts show that India’s benchmark Nifty 50 index declined three times on the immediate next day, and lost in four of five instances within a week.
To be sure, Indian markets during this period were also influenced by other global as well as domestic factors.