The US Federal Reserve decision to keep interest rates unchanged will create more uncertainty for markets over the medium term and this may limit the scope for RBI to cut rates later this month, India Ratings and Research said today.
It said while Indian currency and debt markets react positively to the development, but the markets could become edgy post the initial euphoria.
"While Ind-Ra continues to expect the Reserve Bank of India to reduce policy interest rates by 25 basis points on September 29, 2015, given the low inflation and the attractive real interest rates, the uncertainty factor may limit any aggressive reduction in the policy rates," it said.
The status quo maintained by the US Federal Reserve in interest rates and the associated statements create more uncertainty for the markets than the benefits of continuing low rates over the medium term, Ind-Ra said.
"We believe the rupee will show some strength but market uncertainty could start outweighing it once the initial euphoria settles in," it said.
As regards India, it said domestic macroeconomic fundamentals are improving with real GDP growth above 7 per cent and inflation is benign. Soft global commodity prices augur well for the current account and growth in India, it said.
The US Fed has indicated a possibility of a rate hike by end-December 2015, but the drivers of the decision have become ambiguous. While there were concerns highlighted on account of China, there was a reference to the fact that recent events do not weigh in beyond a point, Ind-Ra said.
