India First Rate Cut In 3 Years

17 April 2012 14:30 - Jack Stupple

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India First Rate Cut In 3 Years

The Reserve Bank of India cut its key interest rate by 0.5% today, the first cut in three years. India’s central bank cut its policy repo rate to 8% from 8.5% in a move that was bigger than expected.

The bank made the move to give boost to flagging economic growth and warned that there is limited scope for further cuts. This reduction in the rate has been prompted by deceleration and growth and softening inflation. The bank also warned that India’s current account deficit which widened to 4.3% of GDP in the last quarter of 2011 is unsustainable and will be difficult to finance given predictions of lower capital flows to emerging markets in 2012.  The RBI has predicted the GDP growth rate for 2012-13 will be 7.4% and it expects the rate to be 6.9% in 2012-12.

The cut is aimed at spurring growth to 9% levels which were seen before the global financial crisis in 2008. The Reserve Bank governor, Duvvuri Subbarao said, “The reduction in the repo rate is based on an assessment of growth having slowed below its post trend crisis, which, in turn, is contributing to the moderation of core inflation.”

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