India could cut interest rates by another 150 basis points by mid-2009 as authorities fight to prop up sagging growth, but the central bank is unlikely to seek zero rates like the United States and Japan even as deflation rears its head according to The Economic Times.
The Reserve Bank of India cut interest rates on Friday for the fourth time since the global financial crisis blew up in September, taking the total reduction in its key lending rate or the repo rate to 350 points. It now stands at 5.50 percent.
Other central banks have slashed rates heavily too to fight off the deepest global financial crisis in decades. The US Federal Reserve and Japan have cut their rates close to zero, sparking debate on how far central banks will have to go to revive their economies.
In India, Ila Patnaik, senior fellow at the National Institute of Public Finance and Policy, a think tank, advocates that the Reserve Bank of India (RBI) follows the Federal Reserve and the Bank of Japan. Other analysts are much more cautious, suggesting more modest cuts. Macquarie Research has pencilled in cuts of 100-200 basis points, HSBC 50 basis points and JPMorgan 150 basis points. Limited government spending power puts the emphasis on the central bank to boost the economy but with growth this year still likely to be the envy of any developed nation, such aggressive cuts aren’t warranted, they say.
Tags: Indian interest rates, RBI, Reserve Bank of India
January 6th, 2009 at 11:31 pm
I feel rates will fall further, but India does not face the same level of cuts required by the rest of the world as our economy is still strong even having fallen to 6% growth and so we will come out of this stronger with greater domestic demand which the RBI also needs to keep in check hence I dont think they will fall that far.
March 3rd, 2009 at 12:53 am
Cutting interest rates is no doubt a good new for the business sector but personally I feel making loan formalities more flexible would be more effective measure to invite sick units to come forward and to start new inning with their revival plans.