Fed Cuts Interest Rate By 50 bps, RBI’s Assurance Lifts Domestic Sentiments

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Fed Cuts Interest Rate By 50 bps, RBI’s Assurance Lifts Domestic Sentiments
Yagnesh Kansara - 04 March 2020
Policy makers across the globe seems to be readying up to take economical and financial implications of corona virus head on. In one such surprise move, the US Federal Reserve announced half a percentage point cut in its interest rate. Regulators across the board seems to have adopted a pro-active approach to fight out the impact of the epidemic that has posed serious challenges on world economic growth.
In a statement, the Fed said it was cutting rates by a half percentage point to a target range of 1.00 per cent to 1.25 per cent. "The fundamentals of the US economy remain strong. However, the corona virus poses evolving risks to economic activity," US Fed said in a statement.
Stocks went on a wild ride Tuesday after the Federal Reserve slashed interest rates by a half-point to help insulate the US economy from the global coronavirus outbreak.
Wild swings followed the unscheduled announcement until investors made up their minds around midday: The Fed's rate cut is bad news for the economy. Stocks dropped sharply in response.
The Dow Jones Industrial Average (DJIA) swung nearly 1,400 points from its low to its high point over the course of Tuesday. At one point, the index was down by 997 points. It finished down 786 points, or 2.9 per cent, retracting Monday's buoyant rally, during which it recorded its best-point gain in history.
The broader S&P 500 (SPX) closed 2.8 per cent lower, only a day after the index logged its best day in more than two years. The Nasdaq Composite (COMP) closed nearly 3 per cent lower.
Although lower interest rates are good for stocks, making borrowing cheaper, the emergency cut also was a signal that the US economy could be in serious trouble because of the virus outbreak.
Back home, the Reserve Bank on Tuesday said it is closely monitoring global as well as domestic situation regarding the impact of deadly coronavirus and ready to take necessary action to ensure orderly functioning of financial markets.
Globally, financial markets have been experiencing considerable volatility, with the spread of coronavirus, triggering risk-off sentiments and flights to safe haven, the Reserve Bank of India (RBI) said in a statement.
Spillovers to financial markets in India have largely been contained. Growing hopes of coordinated policy action to mitigate a broader fallout to economic activity has boosted market sentiment on Tuesday.
After falling for seven consecutive sessions and a day of volatile trade, the benchmark BSE Sensex ended in the positive zone, tracking Asian peers. Global investor sentiment was buoyed after major central banks across the world indicated financial stimulus to contain the impact of the coronavirus epidemic. The Reserve Bank of India (RBI) also said it was ready to take appropriate actions to ensure orderly functioning of financial markets and preserve financial stability.
Sensex settled up 479.68 points, or 1.3 per cent, at 38,623.70, while Nifty closed 170.55 points, or 1.5 per cent, higher at 11,303.30.
Most Asian equities settled in the positive zone on hopes that major central banks across the globe would take coordinated monetary policy actions to deal with the likely economic impact of the coronavirus outbreak. SGX Nifty gained 1.4 per cent, Korea's Kospi index edged up 0.6 per cent and Shanghai's Composite index ended 0.7 per cent higher. However, Japan's Nikkei 225 slipped 1.2 per cent, while Hong Kong's Hang Seng index closed flat.
Dealers said, following US Fed’s decision to cut the interest rate and a firm state ment by the finance ministers of G-7 countries reaffirming their commitment to adopt all appropriate policy steps to protect the economy from downside risks posed by the coronavirus, and that they stand ready to cooperate further on timely and effective measures will go in long way in restoring the market confidence.
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