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Navigation Primary Navigation Home Singapore Asia Pacific World Business Entertainment Sports Technology Secondary Navigation Singapore Asia Pacific World Search Search: India central bank cuts interest rate half point By ERIKA KINETZ,AP Business Writer AP - Sunday, November 2 MUMBAI, India - India's central bank on Saturday cut the nation's key interest rate by a half point to 7.5 percent and slashed the cash reserve ratio, saying additional liquidity is needed to fuel growth in the face of a brewing global recession. The Reserve Bank of India said it was cutting the benchmark repurchase rate from 8 percent to 7.5 percent, effective Nov. 3, after reducing it by one percentage point in a surprise move on Oct. 20. The bank also further reduced the cash reserve ratio _ the amount of cash Indian banks must keep on hand _ from 6.5 percent to 5.5 percent, unleashing an additional $8.1 billion into the financial system. The Reserve Bank of India said the additional liquidity is needed to fuel growth as "early signs of a global recession are becoming evident" and falling commodity prices have made inflation less of a concern. Until recently, Indian regulators had been more concerned about controlling double-digit inflation and moderating the rapid inflow of foreign funds that helped power a four-year economic boom and stock market rally. The financial crisis changed all that. Foreign investors have pulled $12.9 billion from India's equity markets this year, sending the benchmark Sensex index down over 50 percent and punishing the rupee, which has fallen more than 25 percent against the dollar. Affordable financing for Indian companies eager to expand is harder to come by, corporate profits have been hit by slowing demand and foreign currency losses, and overnight lending rates have risen. For weeks, regulators have been doing all they can to attract more capital and keep it flowing through the financial system. The Reserve Bank of India said that during the month of October it pumped 1.85 trillion rupees ($37.4 billion) into India's financial system. Among other things, it cut the repurchase rate, trimmed the cash reserve ratio from its high of 9 percent, eased restrictions on foreign investment, and extended a credit line to domestic mutual funds struggling with redemptions. Business leaders, however, complain that India's commercial banks, stung by the global credit squeeze and growing portfolios of nonperforming loans, are still being parsimonious with credit and haven't immediately passed on lower rates to consumers. "Consumer finance has been a large deterrent to sales," Ravi Kant, the managing director of Tata Motors, said Friday, when the company announced a 34 percent drop in quarterly profits. "Banks are still very reluctant to lend money," he added. "They have got money from the government but they are reluctant to pass it on." The Confederation of Indian Industry, a business group, praised the central bank's moves. "These are timely, coming on the back of a sharp increase in the overnight lending rates and serious concerns about the availability of credit at reasonable rates. We hope that banks will now follow the signal from the RBI and lower lending rates," the group said in a statement. Charudatta Deshpande, a spokesman for ICICI Bank, the nation's largest private lender, said Saturday that the bank had no immediate plans to lower rates for consumers. In August, ICICI raised its benchmark rates for retail loans, and on Oct. 10 it hiked rates on home loans for new customers by another percentage point. Annual rates for car loans have risen by 3 percentage points in the last year, and now stand at 15.5 percent to 17 percent. "Rates are a function of a lot of things, not just the repo rate or the CRR," Deshpande said, referring to the repurchase rate and the cash reserve ratio. "It depends on our cost of funds." Email Story IM Story Printable View Blog This Recommend this article Average (0 votes) Sign in to recommend this article » Most Recommended Stories » Related Articles: Business No big sellers in sight to save troubled ChryslerAP - Sunday, November 2 TOPWRAP 3-China, India feel crisis; Brown seeks Gulf helpReuters - Sunday, November 2 Russia cuts oil duty but exporters disappointedReuters - Sunday, November 2 Bond film opens with guns blazing in BritainReuters - Sunday, November 2 Chrysler halts Renault-Nissan talks, favors GM-paperReuters - Sunday, November 2 Most Popular – Business Viewed US presidential race enters final weekend Consumers curb spending, deepening recession fears Bali bombers await firing squads as Indonesia stands guard Australian F1 race posts record financial loss Millions remember Philippine dead View Complete List » Search: Home Singapore Asia Pacific World Business Entertainment Sports Technology

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