- Gold and commodities often benefit from easing cycles
- Lower interest rates reduce the opportunity cost of holding gold, while softer global growth and stable monetary conditions tend to keep commodity prices, including crude oil, in check
- This is positive for India’s inflation and fiscal outlook, indirectly supporting overall market stability
Indian investors closely track decisions of the US Federal Reserve because changes in American interest rates ripple across global financial markets, influencing capital flows, currencies, bonds, equities, and commodities. As the world’s most influential central bank, the Fed’s policy stance often sets the tone for risk appetite worldwide, with emerging markets like India being particularly sensitive to its actions.
On December 10, 2025, the Federal Open Market Committee (FOMC) cut its benchmark interest rate by 25 basis points to a range of 3.50%–3.75%. This marked the third consecutive rate reduction in 2025, reinforcing the Fed’s shift toward a more accommodative stance. Such easing generally has positive implications for Indian asset classes, although the extent of the impact depends on global and domestic economic conditions.
One of the most immediate effects is seen in foreign portfolio investor (FPI) flows. When US interest rates decline, the interest rate differential between India and the US widens, making Indian equities and debt relatively more attractive
This is particularly relevant at a time when India’s macroeconomic fundamentals remain stable and its government bonds have gained inclusion in major global bond indices. Although FPIs have withdrawn around $18.4 billion from Indian equities so far this year, the latest Fed rate cut is expected to slow the pace of outflows. However, the Fed’s guidance suggesting limited room for further near-term easing may cap the scale of fresh inflows.
In bond markets, a dovish Fed tends to keep global yields lower, which can help Indian government bond yields soften or remain anchored. This improves prospects for longer-duration bonds and income-oriented strategies. Lower global yields also increase the likelihood of the Reserve Bank of India adopting a more supportive stance in 2025–26, especially as domestic inflation shows signs of easing.
Currency markets also respond to Fed policy shifts. A reduction in US rates typically weakens the US dollar, offering support to the Indian rupee. India’s strong foreign exchange reserves and manageable current account deficit further strengthen the case for currency stability, which in turn helps contain imported inflation.
