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Now Two Reasons For RBI To Cut RatesBy akansha, Section Finance & Taxes
There seem to be more than one reason for an interest rate cut now. Industrial production slipped to a 15-year low in December 2008 and Inflation eased significantly to 4.39 per cent for the week-ending January 31.
While the Government is expected to give a big expenditure push to the economy through its interim Budget on February 16, there are indications the Reserve Bank of India will announce a repo rate (the rate at which the RBI lends to banks) cut soon after. After a board meeting today, RBI said it was ready to act if the situation demanded. Commerce and industry minister Kamal Nath too pointed out that interest rates were still high and had to be brought down. Industrial output, which had shown signs of resurgence in November, fell 2 per cent in December, its worst ever in over 15 years. IIP growth in December last year was 8 per cent. Even as banks continue to gradually lower their interest rates, calls from India Inc for further cuts in key policy rates such as the repo rate and CRR will become even more vigorous now in light of these figures. Source: The Indian Express Now two reasons for RBI to cut rates Click On "Full Story" For More...
Inflation fared well riding on the back of cheaper fuel prices, as it hit its lowest level in more than a year today as it fell to 4.39 per cent in the week ending January 31, compared with 5.07 per cent last week, and 4.74 per cent a year ago. According to experts, a weakening industry, coupled with softening prices, is the apt setting for a more lenient monetary stance by the Reserve Bank of India.
Speaking to The Indian Express, DK Joshi, principal economist of Crisil, said IIP growth in December was worse than expected and it was high time that the central bank took steps to improve the situation as soon as possible. He added that given high credit risk, banks would also take some more time to bring their down. "It may be another 3-4 months before banks cut their rates. There is still room for a cut of at least 100 basis points in banks' interest rates," he said. Some of the worst-hit segments of the industry were manufacturing, in which production fell 2.5 per cent, mining, which grew just 1 per cent and electricity which saw a marginally higher growth of 1.6 per cent. Among the various kinds of goods, consumer durables performed the worse as their production a massive 12.8 per cent over last December. Capital goods, however, performed relatively better registering a 4.2-per cent growth, while production in intermediate goods fell 8.5 per cent.
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