This article talks about how India has lowered its interest rates from 8% to 7.75% for the first time in 9 months . It has also reduced the amount of money banks need to keep in reserve with the central bank which provides them with $3.4 Billion which could be given out in loans. All these measures have been done to help in reviving the economic growth which has been low for about three years now. Even though the economy grew by 5.3% the previous year in the quarter from July to September , it has grown at a very slow rate.We could also possibly see more cuts in interest rates to help in achieving a long term growth
http://www.bbc.co.uk/news/business-21241277
http://www.bbc.co.uk/news/business-21241277
A decrease in IR would encourage investment and discourage savings...however, the interest rate still is pretty high compared to say the US. It seems that they are decreasing the interest rates in small increments, so the expectation that most people would have would be to favor long-term investments, because they want their money locked in into a higher interest rate.
ReplyDeleteThis is certainly good for economic growth in the country. India is a country with a relatively lower MPC. However, making ore money available to the consumers should stimulate demand and hopefully inspire an increase in GDP growth.
ReplyDeleteHowever, the Reserve Bank will need to be cautious regarding inflation. Runaway inflation rates, especially in the food market, have been a problem to India in the recent past and are particularly harmful to a large number of consumers. If inflation can be kept in check and interest rates lowered - it should signal a brighter future for the Indian economy.
That's absolutely true what Arjun said . We need to keep check on Inflation levels especially on food inflation because that has a really big effect on the economy. If we do keep inflation levels low then we could see a bright future for the Indian economy.
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