While the job market data from the US on September 6 has paved the way for a much-anticipated rate cut by Federal Reserve – the US central Bank – all eyes will be on the meeting of the FOMC (Federal Open market Committee) on September 18 which can actually announce the financial D-Day of a rate cut. The People’s Bank of China, the second largest economy, is also expected to slash rates to inject life into the sagging growth rates.
An interpretation emerging from the US labour department data was that the high interest rates were facilitating a slowdown of the US economy, almost preparing the stage for a rate cut that was simmering in the oven of speculation for the past few months.
Bonds, debt funds to gain
While a rate cut by the US is expected to boost inflows into the emerging equity markets – and India can be a beneficiary – debt instruments like bonds stand to gain too if the interest rates go down. The price of bonds goes up if the interest rates go down.
Investment strategist and director, Wishlist Capital, Nilanjan Dey told News9live that long-tenure debt funds will benefit the most if there is a rate cut. However, those with shorter duration securities can also expect a rise in their Net Asset Value (NAV), he said.
“Any reduction in the rate environment, particularly in major economies like the US and China, will generally be positive for debt fund returns… Funds with lower durations, which hold investments with shorter maturities, will see a marginal improvement in NAVs,” Vinod Singh, Co-founder and CEO of FINHAAT, was quoted by CNBC as saying.
“Significant progress” made
On September 6 after the US published data on the job market, John Williams, the New York Fed President said that the Fed made significant progress towards its goals of keeping prices stable and encouraging growth, which was reflected by the emerging data. Fed chairman Jerome Powell had said the same thing in August.
The US data has been interpreted in many circles as higher interest rates being an impediment to growth and job creation, paving the way for long-awaited rate cut the by the Federal Reserve. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
