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India Cuts Key Rate for First Time Since 2009



India slashed its benchmark interest rate by a greater-than-forecast half a percentage point, seeking to bolster growth with the first reduction since 2009. Inflation might limit the room for further cuts, the central bank said.

Governor Duvvuri Subbarao lowered the repurchase rate to 8 percent from 8.5 percent, the Reserve Bank of India said in a statement in Mumbai today. The outcome was predicted by three of 25 economists in a Bloomberg News survey. Seventeen expected a 0.25 percentage-point cut and the rest predicted no change.

  Central Bank Governor Duvvuri Subbarao

India's central bank Governor Duvvuri Subbarao. Photographer: Joshua Roberts/Bloomberg

The move stoked gains in the rupee and government bonds, and may buttress demand in an economy hampered by political gridlock that's restraining investment. Policy makers are seeking at the same time to contain inflation that remains the fastest among the BRIC nations.

"They are playing with fire," said Jahangir Aziz, an economist at JPMorgan Chase & Co. in Washington who used to work at the International Monetary Fund. "I am increasingly assured that this is going to be last rate cut" given the risks to inflation from oil prices and loose fiscal policy, he said.

From: http://www.bloomberg.com/news/2012-04-17/india-cuts-key-rate-for-first-time-since-2009-to-aid-growth.html

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