India cuts interest rates

In an unexpected move, the central bank of India has announced that they will be lowering interest rates for the first time in over 4 years since the credit crunch took hold.

Overnight lending rates were cut by 1 percent to 8 percent, as the bank aims to reduce the cash reserve ratio.

The Governor of the Bank of India Duvvuri Subbarao has said that inflation is now a far bigger threat to the country than growth.

Following the slump that has been experienced in the rest of Asia, notably Vietnam and China, the reduction in borrowing costs is expected to stimulate the economy.

Following a lack of action on the part of the Indian central bank, economists believe that the turnaround after four years is due to the decrease in commodity prices which has helped to reduce inflationary pressure.

Crude oil prices are now nearly half their peak price of 6 months ago, whilst the country’s key inflation seems to have slowed to 11 percent.

India’s Finance Minister, Palaniappan Chidambaram, said that he hopes the fact that India has reduced their interest rates will attract further investment in the country and allow the rest of Asia to follow suit as they bid to fight off recession.

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