New Delhi ,aug 4
In a report earlier this week, Fitch Ratings noted that elevated interest rates in the US since 2023 have begun to show some effect on the labour market and demand. Adding to worries, the global rating agency said politics remains an area of high uncertainty, with geopolitical risks here to stay.The rating agency noted that signs of a slowdown in the US are evident in weak credit growth and slowing consumer spending.This trend is expected to continue in the second half of 2024, with real GDP growth decelerating, though likely remaining above recession territory. Continued disinflation and the beginning of a global monetary policy loosening have reduced the probability of a major negative credit risk, Fitch Ratings said. The ECB made its first rate cut in early June, following earlier moves by the Swiss National Bank and the Bank of Canada, with the latter cutting for the second time in late July.”While we now expect a slightly slower pace of rate cuts in 2024 from the Federal Reserve than we anticipated at the end of 2023, the latest US inflation and labour market data support our view that two reductions are likely in 2H24,” Fitch Ratings said.Terming politics as an area of high uncertainty, Fitch noted that the forthcoming US election in November will be particularly relevant for global credit as it could mark a pivot point for policy in several important areas.Wars in Ukraine and between Israel and Hamas have continued, as have simmering tensions in other hotspots.”The broader context of geo-strategic friction between major powers remains a key long-term theme. The greatest risk to credit would come from a direct conflict in one of these hotspots,” Fitch noted.Meanwhile, in India, a key emerging market, analysts point out that loosening monetary policy through interest rate cuts in the US amid weak growth projections could drive investment inflows into India. FPIs have been net buyers in India in June and July, data from National Securities Depository Limited showed.India’s economy, growing fastest among large ones, and its robust fiscal discipline, amid the chance of reduced interest rates in the US through monetary policy loosening, paints a positive picture for fund inflows, asserted Vaibhav Porwal, Co-founder, Dezerv.Porwal said, “FII flows into India should increase due to several factors. Firstly, India’s economy is performing better than many global peers, making it an attractive destination for investors. Secondly, with the risk-free rate expected to come down in the USA, investors will likely seek better returns elsewhere, including India.
