“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, theReserve 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.
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 theInternational Monetary Fund. “I am increasingly assured that this is going to be last rate cut” given the risks to inflation fromoil prices and loose fiscal policy, he said.
The yield on the most-traded 8.79 percent notes due November 2021 fell to 8.34 percent as of 4:28 p.m. in Mumbai, from the day’s high of 8.51 percent and yesterday’s close of 8.46 percent, according to the Reserve Bank of India’s trading system. The rupee strengthened 0.2 percent to 51.56 per dollar, according to data compiled by Bloomberg. It slumped 16 percent last year, spurring price pressures by boosting import costs. The BSE India Sensitive Index of stocks closed up 1.2 percent….”
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