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Strategies & Market Trends : India Stocks
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From: Julius Wong3/5/2009 8:34:13 AM
   of 2517
 
India May Continue Lowering Rates to Spur Growth (Update1)
By Cherian Thomas

March 5 (Bloomberg) -- India's central bank indicated it may keep cutting interest rates after economic growth slowed to a five-year low last quarter.

The Reserve Bank of India yesterday reduced its benchmark repurchase rate to a record low of 5 percent from 5.5 percent and lowered the reverse repurchase rate to 3.5 percent from 4 percent, adding it will ``maintain ample liquidity in the banking system.''

Governor Duvvuri Subbarao is driving policy rates down to unprecedented lows to revive investment and spur consumption in Asia's third-largest economy. The $1.2 trillion economy is weakening as overseas shipments decline and companies' access to funds from overseas and from the stock market is cut off by the global recession.

``Credit availability in India is drying up and is the problem,'' said Chetan Ahya, an economist at Morgan Stanley in Singapore. ``We expect the RBI to cut the policy rate by another 50 basis points by the end of the second quarter of 2009.''

The deepening global recession and slumping share markets, including a 13 percent decline in India's key stock index this year, have forced policy makers around the world to slash borrowing costs.

The U.S. Federal Reserve's benchmark rate is near zero, the Bank of England's is the lowest since its creation in 1694 and the European Central Bank today will probably trim its main rate to 1.5 percent, the lowest level in 10 years of setting policy, according to economists.

bloomberg.com
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