India Slashes Interest Rate

April 17th, 2012
in econ_news

Econintersect:  The Reserve Bank of India (RBI) made a cut of 50 basis points (0.5%) in the repo rate, bringing the short-term rate banks pay down to 8.0%.  India-flagSMALLThis move was made in response to worries that India’s economy might be slowing more than desired.  The size of the cut was a surprise though.  The expectation had been for a 25 basis point cut in the repo rate according to the International Business Times.  Three of 20 analysts polled actually expected no change, while none predicted 50 basis points.  The RBI did not change the cash reserve ratio for banks, another key monetary control.  In January that had been previously cut from 6% at the beginning of the year to the current level of 4.75%.

Follow up:

Here is a summary from The Economic Times which indicates the caution that the RBI still has with respect to monetary easing:

India's economy grew at 6.1 percent in the December quarter, its slowest in almost three years, but the central bank had been reluctant to begin cutting rates as inflation remained elevated, and RBI Governor Duvvuri Subbarao maintained a cautious view in his Tuesday policy statement.

Inflation in March was reported Monday (April 16) at 6.9%, led by rising food costs.  Food was up 9.9% in March after coming in at 6.1% in February.  All numbers are annualized rates.

John Lounsbury


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