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India interest rates on hold as bank reserve ratio cut | India interest rates on hold as bank reserve ratio cut |
(35 minutes later) | |
India's central bank has kept interest rates unchanged, despite signs that the country's economy is being hit by a global slowdown. | India's central bank has kept interest rates unchanged, despite signs that the country's economy is being hit by a global slowdown. |
However, in an effort to boost lending, it cut the amount of money that banks need to keep in reserve. | However, in an effort to boost lending, it cut the amount of money that banks need to keep in reserve. |
It said cutting the cash reserve ratio to 4.25% from 4.5% would inject 175bn rupees ($3.2bn; £2bn) into the market. | It said cutting the cash reserve ratio to 4.25% from 4.5% would inject 175bn rupees ($3.2bn; £2bn) into the market. |
Critics have called for more stimulus measures, and the Indian rupee and stocks fell on the news. | |
"There was definitely lot of expectations in the markets for a rate cut, but people will have to wait for some more time," said Srividhya Rajesh, fund manager at Sundaram Mutual Fund. | |
"It is disappointing for the markets." | |
'Doesn't make sense' | |
This is the second time in as many months that India's central bank, the Reserve Bank of India (RBI), has cut its cash reserve ratio. | |
The latest move comes ahead of the festival of Diwali in November, which is traditionally associated with a jump in consumer spending. | |
People buy new products raging from electronics to cars and jewellery on auspicious days during the festival season. | |
The hope is that increased liquidity may spur consumer demand even further and help to boost growth. | |
However, some analysts were sceptical over whether the move would have the desired effect, not least because the cost of borrowing continues to remain high. | |
The RBI left its key interest rate unchanged at 8%. | |
"If a CRR cut is not backed by a rate cut it doesn't make sense," said Deven Choksey chief executive of KR Choksey, a Mumbai-based brokerage firm. | |
"Banks will be pressurised to lend, but buyers might not feel confident about spending after borrowing at high rates." |
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