India unexpectedly cuts interest rates
The central bank of India has reduced interest rates for the sixth time in sixth months to a new record low, with the economy expanding at its slowest rate since 2003.
The reverse repurchase rate has been cut from 3.25 percent from 3.5 percent, although economic forecasts are still indicating that economic growth may fall to 6 percent.
The global economic downturn has brought troubled time to India with industrial production falling by 1.2 percent, compared to the previous year and this represents the biggest fall in over 14 years.
At the heart of a slowing economy is the problem that exports are falling from month to month.
Governor Duvvuri Subbarao said in a recent statement that the central bank and the government are working together to make sure that everything possible is being done to fight off the global recession.
There is the opportunity to cut borrowing costs even further although a financial stimulus package will not be introduced until the new government steps into office.
Arun Kaul of the Punjab National Bank has stated that the present cut may not be enough due to the sixth month lag time and until commercial rates come down.
The downturn in the economy has caused banks to reduce lending and tighten measures due to the heightened fear of bad debts.
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