A customer holds hundred rupees Indian currency notes near a roadside currency exchange stall in New Delhi
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The US Fed’s twin action of a rate cut and announcement that it will start buying US Treasury Bills could attract FPI investments into the Indian debt and equity markets and have a positive effect on the rupee, say experts.
The US Federal Reserve cut interest rates by 25 basis points to 3.50 per cent to 3.75 per cent range. As part of liquidity infusion measures, it also announced that it will start buying around $40 billion in Treasury bills per month.
Amit Pabari, MD, CR Forex Advisors, observed that the latest US Fed’s actions — a 25 bps rate cut (third consecutive cut since September) and the decision to restart bond purchases of about $40 billion per month — mirror what the RBI recently did: cut rates and inject liquidity into the system. In effect, both central banks have eased simultaneously.
More liquidity
Pabari opined that from a currency perspective, when the Fed adds liquidity by buying Treasury bills, the supply of dollars rises, which typically weighs on the dollar. A softer dollar generally supports emerging-market currencies, including the Indian rupee.
“That said, the extent of dollar weakness may be limited. Fed Chair Jerome Powell signalled a more cautious approach ahead, saying the Fed is “well positioned to wait and see how the economy evolves”,” he said
The updated dot plot also points to only one rate cut in 2026 and one more in 2027, suggesting the Fed is not embarking on a deep easing cycle.
“For India, the overall impact is constructive. Rate differentials remain stable since the RBI’s cut has effectively been matched by the Fed. This helps maintain steady debt FPI flows into India.
“Higher global liquidity tends to favour risk assets. As dollar liquidity rises, risk sentiment globally improves, which can translate into continued or stronger equity inflows globally, as well as into emerging markets,” said Pabari.
Further, a mildly weaker dollar plus stable inflows is generally positive for the rupee. The rupee on Thursday closed at a record low of 90.4825 per US dollar, weighed down by the delay in India clinching a tariff deal with the US and importer demand.
The Indian currency (INR) closed about 52 paise down against previous close of 89.9650 per US dollar (USD). On Thursday, INR surpassed the previous week’s record low of 90.43 per dollar.
Naveen Vyas, Senior Vice-President, Anand Rathi Global Finance, said the Fed’s 75 bps rate cut in 2025 is expected to boost global liquidity and reduce returns on US bonds, prompting the investors to seek higher yields in emerging markets like India. This typically increases FPI inflows into Indian equities and debt.
“Till now in 2025, FPI have sold $17.7 billion in Indian equities which we expect to moderate and may also lead to FPI inflow in 2026. Overall, Fed rate cuts create a positive environment for Indian markets through higher capital flows, supportive currency trends, and stronger investor sentiment,” he said.
However, the Fed’s new bond purchase plan is neutral for Indian market as this new plan is not the same as the large-scale quantitative easing (QE) programs seen in the past. Those earlier programs involved massive bond buying across the curve and were aimed at strongly boosting growth and markets.
Vyas observed that the current move is more of a technical step to ensure there is enough liquidity in the US banking system and money markets. Because of this, the impact on FPI flows into India will be helpful but not transformational. The bigger drivers of foreign investor flows will still be factor of Fed cutting interest rate.
Published on December 11, 2025
