The Bank of England (BoE) held its interest rates steady on Thursday, resisting a rate cut despite the US Federal Reserve’s substantial reduction just a day earlier.

The decision follows the BoE’s August cut and signals a cautious approach to monetary easing as inflationary pressures persist.

In an 8-to-1 vote, the BoE’s Monetary Policy Committee opted to maintain the current rates, with one dissenting member advocating for a 0.25% point cut.

The committee justified the decision, citing elevated inflation in the services sector and emphasizing the need for a “gradual approach” to monetary easing.

Te BoE governor Andrew Bailey said:

Inflationary pressures have continued to ease since we cut interest rates in August. The economy has been evolving broadly as we expected. If that continues, we should be able to reduce rates gradually over time. But it’s vital that inflation stays low, so we need to be careful not to cut too fast or by too much.

Despite the UK’s return to growth this year, economic progress has been slow.

The BoE expects the economy to stabilize at a modest 0.3% growth per quarter for the remainder of the year.

GBP gains against USD

The pound gained momentum following both the BoE’s and the Federal Reserve’s announcements, rising 0.72% against the US dollar to $1.3306 by midday in London, its highest value since March 2022, according to LSEG data.

Global equity markets also rallied, with the pan-European Stoxx 600 index closing 1.35% higher.

On Thursday, the BoE also announced its annual quantitative tightening (QT) plan, confirming that it will reduce its bond portfolio by £100 billion ($133 billion) over the next year.

This reduction will occur through both active sales and the natural maturation of gilts.

While this aligns with the previous year’s pace, some had anticipated a faster QT program.

The BoE continues to face losses on these bond sales, as they are being sold at lower prices than when originally purchased.

Governor Andrew Bailey emphasized the importance of proceeding with QT to create room for future monetary operations, including potential quantitative easing.

The BoE is navigating mixed economic signals.

Headline inflation remains close to the 2% target, but price increases in services—comprising about 80% of the UK economy—have surged to 5.6% in August.

Wage growth, though slightly cooling, remains robust at 5.1% over the three months to July.

Central banks adjust policies as inflation eases globally

This decision to hold rates comes after the US Federal Reserve on Wednesday implemented its first interest rate cut in four years, reducing rates by half a percentage point.

This marks a shift in the central bank’s previous aggressive stance aimed at controlling inflation within the US economy.

Meanwhile, the European Central Bank has also eased monetary policy, lowering rates twice by a quarter of a percentage point at separate policy meetings.

In the UK, economists widely expect the Bank of England to follow suit with additional rate cuts in the coming months if inflationary pressures continue to subside.

Financial markets are already anticipating a further reduction of 0.25 percentage points, bringing borrowing costs down to 4.75% at the Bank’s next meeting in November.

Inflation in the UK has significantly eased after reaching a peak of over 11% in late 2022, driven by the surge in energy prices following Russia’s invasion of Ukraine.

This year, inflation has fallen to more stable levels, nearing the Bank’s 2% target.

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Indian investors are flocking to Greece’s Golden Visa Programme in a race to secure residency permits before new regulations raise the investment threshold.

Between July and August 2024, property purchases by Indian buyers surged by 37%, as they moved quickly to take advantage of the current €250,000 investment requirement.

The Greek government’s decision to raise the minimum investment to €800,000 in high-demand areas starting September 2024 has sparked a wave of urgency among foreign investors, especially from India.

What’s changing in Greece’s Golden Visa Programme?

Introduced in 2013, Greece’s Golden Visa Programme has long been one of Europe’s most attractive residency schemes, offering non-EU citizens the chance to gain permanent residency through real estate investments.

Indian investors have been particularly drawn to the low €250,000 investment threshold, fueling a boom in property purchases in cities like Athens, Thessaloniki, and the islands of Santorini and Mykonos.

However, the Greek government is now increasing the minimum investment in these popular regions to €800,000.

This move aims to stabilize property prices, which have been driven up by intense demand from foreign buyers while encouraging investment in less saturated areas.

Indian investors driving Greek real estate boom

The looming regulatory changes triggered a rush among Indian investors to close deals before the September deadline.

Greek real estate developer Leptos Estates reported selling out its available residential properties due to the influx of Indian buyers, many of whom invested in under-construction projects to secure their residency under the current rules.

These buyers are keen to lock in the lower investment threshold before it jumps significantly, ensuring a foothold in Greece’s thriving property market.

The upcoming hike in the minimum investment threshold is expected to cool property price inflation in Greece’s most sought-after locations.

Over the past few years, Athens, Thessaloniki, and the islands have seen real estate prices rise by 10% year-on-year, making these areas some of the priciest in Europe.

The increase to €800,000 is designed to temper the rising costs in these high-demand areas, encouraging investors to explore less saturated markets where entry prices are lower. This shift could open up new opportunities in emerging regions across Greece.

Why are Indian investors so attracted to Greece?

Greece’s Golden Visa Programme offers more than just residency.

Indian investors are attracted to Greece for its solid property market, which offers annual rental yields of 3-5%.

Additionally, the visa grants access to EU privileges, including high-quality healthcare, education, and the freedom to travel, work, and establish businesses within the European Union.

With property values steadily rising and Greece’s real estate market continuing to show resilience post-pandemic, Indian buyers see long-term financial potential in their investments.

The Golden Visa also provides a pathway to eventual EU citizenship, further adding to its appeal.

While the new investment threshold may slow demand in Greece’s most popular regions, it is expected to shift interest to emerging markets.

Investors will likely explore regions with lower entry costs, seeking opportunities for higher returns in less saturated areas.

As Greece continues its post-pandemic economic recovery, real estate remains a crucial growth driver, with foreign investors—especially from India—playing a key role in shaping the market’s future.

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With the US Federal Reserve slashing rates by 50 bps, analysts in India have begun to weigh in on whether whether the Reserve Bank of India (RBI) will follow suit or maintain its focus on domestic inflation management.

The US Federal Reserve has announced a 50-basis-point cut in its benchmark interest rate, reducing it to 4.75%–5.00%, marking the first rate reduction in four years.

The decision, unveiled on September 18 following the Fed’s sixth policy meeting of 2024, aligns with Wall Street forecasts and reflects a shift in focus from combating inflation to supporting a weakening job market.

Analysts in India agree that the Indian central bank will be led more by domestic macro dynamics like inflation and risk management to follow in the Fed’s footsteps, however, they differed on the timelines.

An October rate cut by RBI possible: Geojit Financial Services

V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services said the Fed’s action sets the stage for potential rate cuts by the Reserve Bank of India (RBI).

Vijayakumar suggested that two rate cuts of 25 basis points each could occur by the end of March next year with the first expected to take place as soon as October.

He said,

A rate cut by the RBI in October is possible. Two independent Monetary Policy Committee (MPC) members have already argued for rate cuts because Q1 signals are not very positive. The earnings growth in Q1 was not impressive, and some downgrades indicated signs of weakness in certain areas of the economy. CPI inflation has eased significantly, and it is expected to be around 4%. 

RBI’s response may be delayed until December, says Emkay

Emkay analysts opined that the Fed’s rate cut marked the start of a new easing cycle, but its mixed messaging has left markets uncertain.

According to Madhavi Arora, chief economist at Emkay Global Financial Services, while markets were heavily pricing a 50bps cut, this was still a surprise, as the Fed usually provides clear signalling before making
an outsized cut.

Arora said that overall, the contradiction between starting the easing cycle with an outsized cut while maintaining that the economy is in good shape was a difficult one for Powell to justify.

“While we were never in the recession camp, a significant slowdown is already underway (as evident through recent labor data), and the pace of this slowdown will dictate the pace of rate cuts going ahead,” she said.

Markets are pricing in ~60bps of easing for 2024 and ~150bps for 2025 –significantly more than the Fed’s projections.

For India, Emkay’s experts suggest that the RBI is likely to maintain a cautious stance, with a potential rate cut on the horizon by December.

Arora said with the global market reaction having been muted thus far, the RBI still has flexibility to remain focused on domestic inflation and risk management, albeit there are over 20 days before its next MPC meeting.

She said,

The RBI is likely to maintain its wait-and-watch stance and focus on being ‘actively disinflationary’, with a first rate cut likely by December. A case for an early cut is still less likely, and we continue to see shallow
cuts by both Fed and the RBI in this cycle.

India’s rate cut not before Q4FY25: Prabhudas Lilladher

Prabhudas Lilladher added a more focused view on India’s likely response to the US Fed’s decision, underscoring the divergence between global trends and local economic dynamics.

Drawing comparisons to the post-Global Financial Crisis (GFC) era of 2013-18, Arsh Mogre, economist, institutional equities, PL Capital suggested that the RBI has shown independence from global rate cycles in favour of managing inflation and economic stability.

Mogre said,

The Fed’s projections show a potential further 50 bps cut in 2024 and an additional 100 bps in 2025, marking a prolonged easing cycle…However, the RBI may not follow the Fed’s aggressive easing as India’s rate cycle has historically been driven by domestic macro dynamics, as seen during 2013-18 when the RBI moved independently to control inflation and manage economic stability post-GFC stimulus.

This divergence reflects that India will cut rates only if domestic weaknesses emerge, and not merely in reaction to global rate cycles, he added.

Mogre emphasized that India’s robust macroeconomic fundamentals, inflation under control and a manageable current account deficit, allow the RBI to focus singularly on inflation management.

“The RBI’s rate decisions will be influenced by a durable alignment of inflation toward its 4% target, but food prices remain volatile, pushing a rate cut by the RBI to Q4 FY25,” he said.

What about foreign inflows?

Historically, a rate cut in developed markets triggers a fund flow into emerging markets. With a rate cut of 50 bps, return on fixed income is likely to drop in the US, making emerging markets like India attractive.

Vijayakumar pointed out that foreign institutional investors (FIIs) have been cautious about investing in India due to its high valuations.

However, with limited alternatives and the federal funds rate projected to remain around 3.4% by the end of 2025, more capital is expected to flow into emerging markets, where India stands out with the best growth prospects, he said.

Market expert Ajay Bagga’s views resonated with Vijayakumar’s:

EMs should see continued and growing inflows from global funds seeking returns. India is well positioned, with a strong macro, with monetary space to cut rates, with good corporate earnings and a vibrant primary market, to garner a fair share of the incremental foreign flows here on.

Government officials however downplayed the impact. Chief Economic Advisor V. Anantha Nageswaran said the impact of the Fed’s rate cut on India would be “muted” as much of the effect had already been priced into the markets.

India’s department of economic affairs (DEA) secretary Ajay Seth Seth told Moneycontrol that the foreign portfolio investment (FPI) into India is not expected to undergo a major shift, and the situation will not need close monitoring to ensure market stability. 

Gold, rupee and broader forecast for India

One of the immediate effects of the Fed’s rate cut has been a stronger Indian rupee.

The rupee strengthened to 83.6 against the dollar following the Fed’s announcement, a reaction that reflects broader market optimism about India’s economic prospects in the face of global monetary easing. 

Mogre pointed to the benefits for Indian asset classes like gold, which tends to perform well during periods of monetary easing.

“Additionally, Indian corporates may increase their use of cross-currency swaps to take advantage of lower U.S. interest rates, helping to reduce borrowing costs,” he said.

Looking ahead, Indian markets are expected to benefit from the Fed’s easing cycle, particularly if foreign institutional investors (FIIs) ramp up their investments.

With strong macroeconomic fundamentals, India is well-positioned to attract incremental foreign flows, especially into sectors like real estate, non-banking financial companies (NBFCs), and infrastructure.

However, caution remains. The volatility surrounding the US presidential election in November could lead to temporary fluctuations in global markets, including India.

Bagga acknowledged this, pointing to the historical tendency of U.S. stock markets to weaken before elections and rally afterward.

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On December 14, 2022, Federal Reserve Chair Jerome Powell made a candid admission: “I wish there was a completely painless way to restore price stability. There isn’t, and this is the best we can do.”

This statement marked the beginning of the Fed’s aggressive rate-hiking cycle aimed at combating soaring inflation.

Powell acknowledged that achieving price stability would be costly and devoid of easy solutions.

One year later, inflationary pressures appear to be easing without precipitating a broader economic downturn.

The dreaded stagflation scenario, characterized by high inflation coupled with stagnant growth, seems to have been avoided—for now.

Just a year ago, many economists believed that taming inflation without inducing a recession was nearly impossible.

The Fed’s aggressive rate hikes stoked fears of a severe economic slowdown, with some predicting potential layoffs and declining consumer demand.

Today, however, the labor market remains resilient, albeit softening, inflation is gradually aligning with the Fed’s target, and economic growth, while moderated, has not collapsed.

On the surface, this outcome looks like a significant achievement for the Federal Reserve.

Yet, the pressing question remains: How much of this success is attributable to Powell’s strategic acumen, and how much to sheer luck?

The role of policy in the Fed’s success

The latest inflation data is promising. As of August, inflation has eased to 2.5%, down from 2.9% in July, moving closer to the Fed’s 2% target.

Core inflation, which excludes volatile food and energy prices, remains steady at 3.2%.

Powell’s strategy to address inflation involved raising interest rates aggressively, pushing them to a 23-year high of 5.25%–5.5%.

These hikes were designed to cool an overheated economy by tightening financial conditions and reducing demand, particularly in sensitive sectors such as housing and construction.

Proponents of Powell’s approach argue that his swift and decisive actions played a crucial role in anchoring inflation expectations, thereby helping to alleviate price pressures.

However, not everyone is convinced. Some economists suggest that factors beyond the Fed’s control were more influential in driving disinflation.

For instance, the easing of supply-side disruptions and a surge in labor supply, particularly due to increased immigration, were significant contributors to cooling inflation.

While Powell’s policies may have contributed to some extent, critics argue that these external forces played a more decisive role.

The power of timing?

Powell’s tenure has been marked by fortunate timing.

One notable event was the mini-financial crisis triggered by the collapse of Silicon Valley Bank (SVB).

Though it caused market anxiety, it did not escalate into a full-blown recession.

Instead, it provided the Fed with an opportunity to slow its rate hikes, allowing it to gauge the economy’s response without resorting to more aggressive tightening.

Additionally, the resilience of the economy has been a stroke of luck.

Household and business balance sheets were in better shape than anticipated, thanks in part to the fiscal measures implemented during the COVID-19 pandemic.

This resilience meant that the Fed’s rate hikes caused less economic pain than initially feared.

The neutral real interest rate—the level at which monetary policy neither stimulates nor constrains the economy—was higher than expected.

This situation allowed the Fed to signal its commitment to tackling inflation without imposing excessive strain on the economy.

Unforeseen factors such as increased immigration and unexpected productivity gains also played a role.

Though beyond the Fed’s control, these factors contributed to reduced labor costs and an improved supply side of the economy, making the soft landing more feasible.

The Fed has not yet reached its 2% target

Although inflation is currently under control, the “last mile” of disinflation remains challenging.

The Fed has not yet reached its 2% target, and risks of inflation flaring up again persist, reminiscent of the 1970s cycles.

Housing costs continue to rise, and the labor market remains tight.

While Jerome Powell deserves some credit for preventing the kind of inflation resurgence seen in previous cycles, significant hurdles remain.

The Fed faces the delicate task of avoiding rate cuts that could reignite inflation. Although the economy is stable now, aggressive rate cuts could undo much of the progress achieved.

Skill or luck?

The answer likely lies somewhere in between.

Powell and the Federal Reserve have undoubtedly played a crucial role in stabilizing inflation, but many favorable circumstances were beyond their control.

The Fed did not solely engineer the soft landing; it benefited from a series of fortunate events, including post-pandemic adjustments and labor market shifts.

Powell’s leadership should not be disregarded; his decisive actions in the face of rising inflation helped anchor expectations and calm market fears.

While he may not have foreseen the lucky breaks that came his way, he capitalized on them effectively.

The soft landing achieved thus far reflects both Powell’s skill and favorable external conditions.

The future will depend on how carefully the Fed manages the next phase of monetary policy and whether the forces that have tempered inflation continue to align.

For now, Powell can claim partial credit for navigating a complex economic landscape, but the journey to full stability is far from over.

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S&P 500 has already rallied well over 20% this year but Brian Belski, the chief investment strategist of BMO Capital Markets, sees further gains in the months ahead.

The benchmark index could climb further and hit the 6,100 level before year-end now that the US Federal Reserve has announced its first rate cut in four years, Belski told clients on Thursday.

Belski expects a stronger-than-normal fourth quarter after the central bank indicated plans to lower interest rates by another 50 basis points in 2024.

His forecast suggests potential for another 9.0% gain in the S&P 500 from here.

Belski expects the rally to continue

The S&P 500 tanked to about 5,400 in the first week of September but has since recovered back to over 5,700 at writing.

Brian Belski had raised his year-end target to a street-high of 5,600 in May.

“We continue to be surprised by the strength of market gains and decided yet again that something more than an incremental adjustment was warranted,” he said in a research note today.

The benchmark index could retest its September low but is fairly positioned to quickly rebound and hit the 6,100 level by year-end, the BMO strategist added.

Brian Belski expects the projected upside to materialize even if the large-cap technology stocks trade sideways as he expects the rally to broaden out moving forward.

US economy may not be headed for a recession

The BMO strategist left his earnings per share expectation unchanged at $250 on Thursday. This suggests he applied 24.4 times multiplied to get to the 6,100 level year-end target.  

He agreed that the presumed price-to-earnings multiple may look elevated but said it is not when compared to the mid-1990s.

Belski finds now is comparable to the mid-1990s if the United States does not end up in a recession in the coming months.

Despite recent weakness in jobs data, many experts still foresee a soft landing ahead. Following the 50-bps rate cut the Fed announced last night, Tom Porcelli, the chief US economist at PGIM Fixed Income said:

This was an atypical big cut. We are not knocking on recession’s door. This easing and this big cut is about recalibrating for the fact that inflation has slowed so much.

Last week, the Labour Department said inflation stood at 2.5% for the year in August versus the Dow Jones estimates of 2.6%.

Excluding food and energy, however, the core CPI was up 0.3% for the month, more than 0.2% expected.

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